Uk Taxation Treatment For Rental Income

UK Taxation Treatment For Rental Income
Property Rental Income for Individuals
UK Rents and licence's are regarded as​ UK land and property .​
Land and property income is​ all income deriving from such property as​ if​ it​ were a​ trade .​
Therefore this is​ calculated as​ all income being assessed in​ the​ tax year on​ an​ accruals basis .​
This means that income is​ taxed on​ an​ arising basis in​ the​ year of​ assessment,​ i.e .​
income that is​ due in​ the​ year,​ and not necessary income that is​ actually paid by the​ tenant .​
For example if​ a​ tenant per the​ tenancy agreement is​ obliged to​ pay £495 a​ month,​ the​ taxable income is​ £5,​940 a​ year,​ irrespective of​ the​ fact the​ tenant might say pay late for their rent.
Since rental income is​ an​ assessment like trade,​ all income from the​ different rental properties are pooled together,​ creating one income stream .​
Hence profits and losses of​ the​ same UK properties are amalgamated together to​ create the​ net profit or​ loss .​
In essence losses from one property is​ netted off against profits of​ the​ other .​
If they are losses overall after pooling all the​ properties together,​ then these losses can be carried forward against future profits of​ property income .​
These losses cannot be set off against other income,​ e.g .​
employment income or​ self employed income .​
However,​ if​ losses arise due to​ capital allowances this may then be relieved against other general income .​
Capital allowances is​ the​ allowable decrease in​ value of​ the​ assets each year that are used in​ the​ properties .​
For e.g .​
fridges and ovens .​
Capital allowance rates will be 20% or​ 25% a​ year depending on​ current capital allowance rates.
Expenses are allowed to​ be deducted if​ they are incurred wholly and exclusively for the​ purposes of​ the​ property .​
The treatment for limited companies broadly follows the​ same rules as​ for UK individuals .​
Income from Overseas Property for UK Residents and Domicile
A UK resident or​ domiciled person will be taxed on​ income arising on​ overseas property and hence must be declared on​ the​ UK self assessment return .​
a​ tax credit may be given dependant on​ double taxation treaties for tax suffered in​ the​ overseas country on​ that rental income .​
On the​ other hand,​ non-resident individuals will not be taxed on​ overseas property income in​ the​ UK .​
Non domiciled individuals will also not be assessed on​ this income,​ but only assessed on​ a​ remittance basis,​ whereby the​ income is​ only taxed if​ it​ is​ brought in​ the​ UK.
Recent rules affecting non-domicile individuals that have been resident in​ the​ UK for 7 years or​ more may have to​ pay tax on​ there overseas income,​ unless they choose to​ pay an​ annual tax charge of​ £30,​000,​ if​ they wish to​ adopt the​ remittance basis in​ the​ future .​
Income from properties overseas is​ treated like a​ separate business to​ that of​ income arising from UK properties .​
Hence losses for overseas properties can only be offset against profits from overseas properties arising in​ the​ future and cannot be offset against UK property income .​
Rent a​ Room Relief
This is​ a​ relief is​ given for renting a​ room in​ one's main residence .​
This relief is​ not available for a​ property that is​ not occupied by the​ owner as​ their main residence,​ and hence fully let properties are not eligible for this relief .​
However,​ lease holders whose name is​ on​ the​ lease,​ can claim this allowance for their lodgers,​ providing of​ course the​ lease allows them to​ take on​ lodgers .​
The relief is​ not available for commercial lets of​ the​ property i.e .​
home as​ office,​ or​ letting part of​ the​ property to​ a​ company .​
Relief is​ given up to​ £4,​250 per tax year .​
Rents from lodgers at​ or​ below this amount is​ not taxable .​
This is​ a​ total allowance for the​ property is​ not apportioned per room .​
If income is​ received over and above the​ rent a​ room relief,​ then the​ amount above is​ taxable,​ and is​ declarable in​ the​ self assessment return .​
The advantage of​ the​ rent a​ room relief is​ that it​ does not affect the​ principal private residence relief when coming to​ sell the​ property .​
If the​ property was let outside this allowance,​ and actual rental income and costs were declared in​ the​ normal way,​ then that element of​ the​ property being rented would not be exempt for capital gains tax,​ and hence capital gains tax would be chargeable on​ that apportionment of​ the​ property .​
Letting relief however may be available up to​ a​ maximum of​ £40,​000.
Uk Taxation Treatment For Rental Income Uk Taxation Treatment For Rental Income Reviewed by Henda Yesti on July 05, 2018 Rating: 5

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