As the Self-Assessment deadline of 31 January is fast approaching, it is worth a reminder of the requirement to submit a tax return for any income and / or gains you’ve made from properties.
Many individuals and companies hold property for investment purposes, hoping for a capital gain in the long-term, whilst benefitting from rental income in the short-term. Recent research indicated that Northern Ireland house prices were the strongest performing in the UK with house prices in the fourth quarter of 2018 up by 5.8% annually to reach £139,599. Furthermore, the growth in popularity of holiday rentals like Airbnb may lead to property owners with potential taxable rental income.
However, recent tax changes including the 3% stamp duty surcharge on second homes and new interest relief restrictions have affected the profitability of the buy-to-let market, leading to some smaller landlords exiting the market and others passing on the increased costs in the form of higher rents. The new interest restriction rules which apply from 2017/18 for residential properties, may push some taxpayers into the higher rate tax bracket.
It should be noted that there is a £1,000 property allowance, which means that rental income below this level does not require to be declared in a tax return.
Furthermore, rental income from a room rented in a taxpayer’s main residence does not require to be declared in a tax return, if it is less than £7,500 per annum.
Landlords can reduce their rental income by off-setting related property expenses. Most expenses will be deductible provided they are not in relation to new ‘capital’ assets such as kitchen units and furniture. Costs of replacing these items should, however, be deductible. Repairs to the property should be treated as deductible except for the costs of significant improvements.
It is important to note that non-resident landlords, both individuals and companies, have to pay tax on rental income from property located in the UK.
If a UK property has been sold or gifted during the year, capital gains tax may be payable on any profit made on the disposal. However, there is generally no tax due on the sale of a UK taxpayer’s main home.
In summary, individuals or companies in receipt of income from rental or sale of property should consider whether a tax return is required and if it is, take action to submit a return before the Self-Assessment deadline of 31 January 2019.
HMRC have a ‘Let Property Campaign’ to encourage those with outstanding filing obligations to make a voluntary disclosure, thereby securing lesser penalties than if HMRC discover the obligation independently.