Had a void - make sure you claim for you utility bills

Any landlord who was unfortunate enough to have a void period during the last rental tax year may have ended up having to pay for a utility bill or two whilst their rental property was unoccupied.

Make sure that you claim this as a rental expense when filling out your tax return.

It may not be much be better in your pocket than going towards propping up another dodgy bank!

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Tax - the Holly Grail of the "wholly & exclusively" test

Once a landlord has decided an expense is a revenue expense, they must apply the ‘wholly and exclusively’ test.

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This rule says that expenses cannot be deducted unless they are incurred wholly and exclusively for business purposes. Tax inspectors will want to see documentary proof of contentious expenses – like documents, agreements, notes of meetings and any other records – so make sure you keep detailed and organised records to prove your expenses.

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The taxman will listen to what you say about why you are claiming an item as a business expense, but will look at disproving at what you say unless you can back it up with documentary evidence.

EXAMPLE

For example, a property owner lives in London and also owns a cottage in Cornwall. The cost of travelling to Cornwall for a family holiday will fail the ‘wholly and exclusively’ test even if the property owner says the visit was to inspect and prepare for a letting. This is called a ‘dual purpose’ expense.

Dual-purpose expenditure

If an expense is not wholly and exclusively for the rental business, then strictly, it should not go in the accounts. In practice, some dual-purpose expenses include an obvious part spent for the purposes of the business. Tax inspectors are told to allow a proportion of dual-purpose expenses that are ‘apportioned’. When expenses may be apportioned HMRC guidance for tax inspectors says they may allow a proportion of an expense when a definite part or proportion of it is wholly and exclusively for the purposes of the rental business. Where a definite part or proportion of an expense is wholly and exclusively incurred for the purposes of the business, that part or proportion can be deducted.

EXAMPLE

An example is the revenue running costs (including standing charges and hire-purchase interest) of a car or van used partly for business and partly for private purposes. If 20% of the car mileage is business mileage, deduct 20% of the running costs of the car, including standing charges.

Keep a business mileage log for each trip, recording:

- The date of the journey
- The start and end point
- The business reason for the trip
- The miles travelled.

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Tax - every landlord should NOW be claiming £156 a year for home office expenses

Landlords should NOW be claiming a minimum of £3 per week for running their letting business after a change in the tax rules. Last year it was only £2.

It's always nice to get something back from Gordon and the taxman even if it is only an extra £1 per week.

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The relief is claimed as way as an expense when calculating a landlords expenses in running a letting business.

This amount could be more but a landlord will have to be able to evidence this by ways of demonstrating apportionment of household bills. In his case a landlord can get tax relief for the extra household expenses that you have to pay because you run your letting business from home. Typically these extra expenses include:

• the extra cost of gas and electricity to heat and light your work area


• business telephone calls

However, before landlords get too carried away you won't be able to get relief on domestic expenses that you're paying anyway - like your mortgage or council tax. You also won't be able to get relief for expenses that relate to both business and private use - such as your telephone line rental, or Internet access. This is because the HMRC apply the rule of 'wholly and exclusively' when assessing whether an expense is allowable as a deduction.

For full details on homeworking go to the HMRC website.

For details how you can calculate your tax for your rental property for FREE.

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Hazel Blears makes me sick

Hazel Blears has written out a cheque for £13,332 to pay back her tax evaded gains. As someone commented on the HousePriceCrash forum , does this include the usual fines and interest that would be associated with evasion on tax. I wonder.

"The most important thing is to re-build trust with my constituents" she whines on, she truly is a monster of fake empathy - well my advice is don't be a cheating fraudster in the first place, Hazel. .. no, but , yes but .. no but!

Hazel Blears is the most insincere politician in this country today, I hope her constituents see this and refuse to vote her back in. At least then we won't have to see her whining insincerity polluting our television sets, with her high pitched treacle fueled begging to the general public.

I'm off to lie down.
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Strictly star shows the way with buy-to-let tax avoidance

I know that for many landlords the days of capital gains and rising prices are a distant memory.

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However, as sure as eggs are eggs the day will come again soon when the sale of a property could result in a large capital gain.

One celebrity landlord or landlady has highlighted the fact that there are ways that a landlord can neetly 'side step' paying capital gains on their buy-to-let property.

Any landlord who has watched the BBCs programme strictly come dancing may have admired Danish dancing sensation Camilla Dallerups attractive footwork may also be impressed by her financial acumen.

In this recent article in Thisismoney she illustrates how she is using the system that allows a landlord to nominate their Principle Private Residence to minimise her exposure to future capital gains tax liabilities.



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Landlords owning holiday homes to be hit

According to a recent report on Moneywise holiday homes owners are going to be smarting after the budget cuts the tax benefits they had previously enjoyed.

People who own a holiday-home in the UK will lose a range of tax benefits from next April after a hidden clause in the Budget revealed the holiday lettings rules are to be scrapped.

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Under current legislation, landlords who own a holiday property in the UK enjoy several benefits under the Furnished Holiday Lettings (FHL) rules, including being able to write off any trading losses (such as loss of rental income) from their second home on their tax bill and being allowed to postpone any capital gains tax by investing in another property.

A furnished holiday letting business may also be exempt from inheritance tax where the lettings are short-term and the owner is significantly involved with the holidaymakers’ activities.

However, the 2009 Budget reveals these benefits will be abolished from April 2010. The only silver lining is that, until that happens, the FHL rules will be extended to those with qualifying homes within the EU.

For a property to qualify as a 'furnished holiday lettings’ it must be furnished, available for letting to holidaymakers for at least 140 days a year and let out for at least 70 days a year - but not occupied for more than 31 days by the same person in any seven-month period.

The property also has to be let out to holidaymakers and tourists in order to qualify.

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Buy-to-let tax - pay less property tax

Any landlord letting property will be focused at this time of year of completing their self assessment tax return. They will also be no doubt keen to minimize their tax liability.

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One way they can do this is to ensure that they claim all the expenses incurred in running their letting business from home.

Home office use

The HMRC apply the 'wholly and exclusively' rule when assessing whether an expense is a legitimate expense that can be claimed in the running of a landlords letting business.

This means when a landlord uses part of their home in running their business, they can claim the associated costs if the business has the sole use of that part of the landlords home. For instance if a landlord uses a bedroom as a home office or even a dining room table exclusively for business purposes. A landlord will not have to have separate bills relating to their letting business as clearly this would be impractical for a domestic arrangement. Instead they need to apply the principle of apportionment in calculating the business costs.

Claiming for minor business use

Tax inspectors are told not to question claims for minor uses which cost less than £2 per week. A minor use would cover the use of a kitchen table to do accounts for a couple of hours a week. Therefore a landlord should include a minimum claim of up to £104 a year minor business use expense because the HMRC won't question the deduction and will not need to see bills or receipts.


Major business use

Where a landlord runs a larger letting business that may include using a dedicated room in their home as an office, then landlords need to make sure that their claim is consistent with the size of their letting business if they want to avoid a tax inquiry by the HMRC. This is because the HMRC keeps template accounts for every type of business by comparing accounts and tax returns. This data shows what percentage a landlords turnover your general costs should be and that breaks down into how much as a percentage of turnover may be spent on travel, telephone, stationary, etc.

A landlord can claim two basic sorts of business cost. FIXED COSTS (costs that stay the same over a given period) and RUNNING COSTS (vary according to circumstances)

FIXED COSTS: insurance, council tax, mortgage interest, rent, repairs and renewals (exterior and rooms used for business)
RUNNING COSTS: cleaning, heat light power, telephone & internet, metered water charge

Apportioning the costs

Apportionment often plays a big part in claiming business expenses. The factors taken into account include:

1.Area of the office: Percentage floor area of a landlords home eg bedroom equating to 10%
2.Time: How many hours is room used for business purposes eg 2 hours a day
3.Useage: What proportion does the business consume of any measurable supplies eg this is frequently calculated by combing categories 1 & 2. For example dining room used comprising 15% of floor area used for 2 hours a day. Or bedroom equating to 10% of floor area used specifically for office.

Significant expenses for professional landlords

Landlords should therefore think carefully about claiming all the expenses incurred in running their letting business. For many larger and professional landlords their are significant expenses that they can claim for when running their letting business from home. They should always make sure that they can evidence any claim made in case the HMRC hits them with a tax inquiry.

Buy-to-let tax - loan interest

One of the largest expenses incurred by a landlord running a letting business is the loan interest paid on any buy-to-let loan secured for their property rental business.

However, it is not just the loan interest paid on any buy-to-let mortgage. Other loans that were used in connection with their buy-to-let business can also be included as an allowable expense when a landlord calculates their rental profit. Landlords should remember that it is only the interest on the loan that can be included; any sum used in the repayment of capital needs to be excluded.

The Property Manager 2 FREE letting software available on www.propertyhawk.co.uk allows landlords to calculate their rental profits and tax liability. Landlords should add in the loan interest for each buy-to-let loan. Where they have a loan which is not secured against a buy-to-let property they can create a property called 'general'. They then can add in the loan interest paid against this to record a complete record of all the loan interest paid.

Buy-to-let tax- the wear & tear allowance

Many landlords have heard of the mythical 10% automatic allowance that landlords can claim for their buy-to-let rental properties.

This means that a landlord can claim for wear and tear on the furnishing of their buy-to-let property by using a figure of 10% of the net rent as an expense when calculating their rental profits on their lettings business. This is generous because a landlord can claim this expense even where they have not replaced any of the furnishings or appliances. Once a landlord has elected to use this method for one of your furnished properties then you will have to use it for all of your furnished properties.

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Landlords should be aware that this allowance only relates to furnished property. Part furnished property, those with just white goods such as cookers, fridges and are not classed as being furnished.

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Therefore where a landlord lets unfurnished they need to claim their expenses on a renewals basis. This means as the expense for a new cooker for example is incurred, then this expense should be recorded as an expense in your tax calculations for that tax year.

Buy-to-let tax advice - Finance costs

Many landlords will have taken out a mortgage or remortgaged a buy-to-let property as part of running their letting business.

Can I claim the costs of a mortgage or remortgage?

The costs of obtaining finance for a landlords letting business are a legitimate expense in running a landlords letting business.

The following therefore are legitimate costs in obtaining finance for a landlords letting business.

• legal costs in securing a new loan such as conveyancing costs incurred in a remortgage
• buy-to-let mortgage brokers commission
• valuation fees associated with buy-to-let mortgage
• fees paid for set up of buy-to-let mortgage

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Landlord tax deadlines

Landlords Xmas is over and the new year is almost upon us. EEEk! Time for a landlord to prepare their tax returns unless you are one of those super efficient beings. The type who probably has been buying next years Xmas presents very sensibly in this years January sales.

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I was looking on the Property Hawk website and I've found several property tax articles that might provide some useful guidance on what to do in filling out your self assessment tax form before the 31st January tax deadline. One was on tax demands and was particularly appropriate. Remember the Property Manager 2 allows landlords to workout their income tax liability using the FREE letting management software. I've been using it for several years and I must admitt i've found it alot easier than messing about with spreadsheets.

Happy New Year and have a look at my previous tips for how to reduce your letting business tax liabilities.

landlord tax information

Landlords looking at filling in their self assessment forms over the xmas period might need to clarify certain matters regarding the taxation of their buy-to-let portfolio.

Landlords can buy various books on property tax, but there is much information which is available free on the internet such as the section within the Landlords Bible

However, why not also look at getting information direct from the horses mouth. The HMRC has all their guidance available within the practitioner section of their website. Go here to view all the tax guidance on buy-to-let property

Taxation - double glazing

Many landlords will look to update their buy-to-let property at some stage by replacing the existing wooden glazing with UPVC windows and doors.

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Up until recently HMRC considered the replacement of single glazing with double glazing as an improvement and therefore not allowable as a revenue expense. Landlords would however be able to include the costs within their capital costs when it came to selling their investment property and working out their likely CGT liability.

However, the HMRC have conceded that now replacement by UPVC is a repair and should be treated as a revenue expense.

In there own words:

Generally, if the replacement of a part of the ‘entirety’ is like-for-like or
the nearest modern equivalent, we accept the expenditure is allowable revenue
expenditure.

For more details on a landlords allowable deductions landlords should go to this section of the HMRCs website.

Therefore by offsetting this cost against their revenue a landlord reduces their potential income tax liability which for many landlords has increased substantially as interest costs have fallen.

Saving tax - payment in kind

Landlords who have industrious or creative tenants may benefit from their endeavours.

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This is through a little know tax principle known as 'payment in kind'.

For instance if a tenant does some DIY. One of my tenants rebuilt his previous landlord's fireplace. In that situation a landlord should ensure that they allocate the work a fair and reasonable cash value.

An example would be where a tenant does some decorating to help you the landlord out and also to brighten up their rental place. The tenant therefore spends £20 on paint and also spends a day decorating. Allocate this a reasonable value. Materials £20 and a days work £80 equalling £100.

No matter what form the payment takes, it still has a cash value and that cash value goes into the accounts as income.

A landlord should remember to keep a note with the accounts of how they arrived at the cash value, so if the taxman enquires then you are able to provide evidence of the 'payment in kind'.

Introducing TAXslation

Hi, I'm a property taxation expert who will give landlords simple tips and ideas of how to pay LESS tax on their property investments.

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