CHARTERED ACCOUNTANTS (ICAEW)

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Is a Property Company a Tax Efficient Option?

Tax changes in recent years to the way that unincorporated landlords are treated for tax purposes, particular in respect to relief for interest, have resulted in an increase in the number of landlords operating their property rental business through a company. Is this a good idea? We take a look at some of the issue to consider in reaching a decision. Separate legal identity A company has a separate legal identity to those who own it. A company must be registered at Companies House and must file...

Common deductible business expenses

No-one wants to pay more tax than they need to. Consequently, it is important to keep good records of business expenses so that deductible expenses are not overlooked. General rule The basic rule is that a deduction is allowed for expenses incurred wholly and exclusively for the purpose of the trade, profession or vocation. Unlike the equivalent rule for employment expenses, there is no requirement that the expense is ‘necessarily’ incurred. This means that as long as an expense is incurred ...

Tax relief for bad debts

Bad debts are a fact of business life and most businesses will suffer a bad debt from time to time. This may be because the customer goes out of business after the work has been done or the goods have been supplied, or runs into financial difficulty resulting in them defaulting on the debt. Unfortunately, sometimes the customer may just not pay and refuse all attempts to recover it. While there are actions that the business can take to recover the debt (such as making a claim using the Money Cla...

Involuntary strike-off: what can you do?

The registrar of companies has the power to strike a company off a register if the registrar has reasonable cause to believe that the company is no longer carrying on a business or is in operation. This may be the case if the company has failed to file its annual accounts or its annual confirmation statement, there is no director in place or mail sent to the company is returned unopened. However, before the registrar can move to strike the company off, he or she must first send two letters to th...

How to claim the IHT transferable nil rate band

For inheritance tax (IHT), there are potentially two nil rate bands available. The first – the nil rate band – is available to everyone and is set at £325,000 until 5 April 2026. An estate does not have to pay any IHT up to this amount. The second nil rate band is the residence nil rate band (RNRB). This is available where the main residence is left to a direct descendant, such as a child or grandchild. The RNRB is set at £175,000 until 5 April 2026. However, unlike the nil rate band, the...

Capital allowances for cars

Capital allowances are a mechanism for providing tax relief for capital expenditure. Relief is generally given in the form of a writing down allowance, although a first year allowance is available for expenditure on new and unused zero-emission cars. Expenditure on cars does not qualify for the annual investment allowance or for the time-limited super-deduction or 50% first-year allowance available to companies. Capital allowances cannot be claimed where the simplified expenses system is used to...

The Construction Industry Scheme and property investment companies

The Construction Industry Scheme (CIS) is a tax deduction scheme under which tax is deducted from payments made to subcontractors for construction work unless the subcontractor is registered with HMRC for gross payment status. HMRC recently published guidance on the application of the CIS to property investment companies after it came to their attention that many property investment companies undertaking substantial redevelopments were unaware that they needed to register as a contractor within ...

Managed lets – is VAT due on recharged expenses

If you use an agent to manage a let property, they may incur expenses, such as repairs and cleaning costs, on your behalf and recharge these to you. Where this is the case, will you need to pay VAT on those expenses? Recharge or disbursement? Where costs are incurred by the agent and passed onto the landlord, it is necessary to determine whether the cost is a recharge or a disbursement. This is an important distinction as the VAT treatment differs. Disbursements A payment made to a supplier on b...

Use the property allowance to make tax-free income from renting your drive

The summer is a popular time for events and event parking is often limited. If you have a drive or field that you do not use, you could consider renting it out to make some money. This need not give rise to a tax headache. However, it should be remembered that all income from renting UK property owned by the same person or persons forms a single UK property business. Consequently, if a person has other rental properties, rental income from renting a driveway cannot be considered in isolation; in...

HMO Licensing Fees

Landlord Peter Gaskin has challenged House in Multiple Occupation licensing costs which were imposed on him by Richmond Council in London.  When he applied to renew his license on a shared house, the council asked for two fees.  One fee was the application fee, the other fee was a contribution to the costs of running the council's HMO licensing scheme which amounted to £1,799.  Peter Gaskin paid the processing fee but refused the additional cost and was then prosecuted for runnin...

New Rules for HMOs

New rules are being introduced later this year for Houses in Multiple Occupation - HMOs.Landlords who rent out houses to five or more tenants, from two or more separate households, must have a local authority licence, from 1st October.These new rules include minimum bedroom sizes in shared houses.  The rules also require Landlords to take responsibility for their tenant's rubbish.The Government says this to protect tenants from poor living standards in homes owned by a small number of landl...

Rent a Room Relief

If you rent a room out in your only or main residence, you can claim upto £7,500 per year tax free income, known as Rent a Room Relief. A new "shared occupancy clause" is to be introduced which specifies that the owner be resident in the property, and physically present, for at least some part of the letting period.  This new clause should ensure that the relief is returned to it's original purpose.  This was to incentivise the letting of spare rooms and to ease the housing crisis. Th...

Councils Cannot Impose Selective Licence Condtions

In a recent Court Case, involving Landlord Paul Brown, the Court of Appeal has ruled that Councils are not allowed to use selective licensing conditions to impose conditions on rented homes. Hyndburn Council tried to make landlords carry out electrical safety checks and force the installation of carbon monoxide detectors. The landlord was supported by the Residential Landlords Association and, although he carried out the Council requirements, he argued that the imposition of these conditions wen...

Are carpets, curtains and washing machines tax deductible?

Make sure you know the tax implications before you purchase items such as fridges, carpets and curtains for your rental property. The rules have been changing and this has caused some confusion for some landlords. At present you cannot reclaim the cost of these items using what was called the renewals basis because the government withdrew this allowance as of April 2013. At the moment the only relief available is the wear and tear allowance. This is 10% for a fully furnished rental property. ...

Should a Landlord do Repair Work Themselves ?

This may seem like a great idea - especially if you are good at DIY. Why not repaint that house which is coming empty yourself, calculate the cost of the work you have done, and reduce your profits accordingly. Unfortunately it doesn't work quite like that. Her Majesty's Revenue and Customs rule that a landlord can't deduct anything for the time they spend themselves working in their own rental business. They can however make a deduction for any materials which they have purchased. So before...