You can minimise errors in your tax return by using HMRC’s property rental toolkit. To find out more about it read below.

Computation

For unincorporated property businesses, the default basis is the cash basis where qualifying conditions are met, and the landlord does not choose to use the accruals basis.

If a business has moved into or out of the cash basis, transitional adjustments may be required.

Record Keeping

You should make sure that you keep accurate records so that income and allowable expenses are calculated correctly and not overlooked in the tax-return.

Property disposals can also be missed if accurate records are not kept.

Property income receipts

Make sure that you keep all receipts from payments in kind and from income which arises from an interest in land, as these should be included as receipts from the property rental business.

Profits and losses from overseas lets, furnished lettings and from properties let rent-free or below market value should be dealt with separately.

If you have more than one UK let, the income and expenses will be combined from each property to work out the overall profit and loss for the property rental business.

Deductions and expenses

Expenses must be incurred wholly and exclusively for the purpose of the property rental business and these can be deducted in the computation of profits.

If problems arise when an expense has both a business and private element. A deduction can only be made for the business part where it meets the wholly and exclusively test.

Allowances and reliefs

If you receive rental income, there are many reliefs that may be available to you.

Rent-a-room relief

Rent-a-room relief is available to taxpayers who let out a furnished room in their own home, and they have receipts of £7,500 which will be tax-free.

Property income allowance

If you have a property income of £1,000 or below, then you will not have to return it to MRCHMRC.  

Capital allowances

If your income exceeds £1,000, then the allowance will be deducted instead of actual expenses.

You can also claim capital allowances on items that belong to the landlord, which are used for the business.

For example:

  • vehicles
  • ladders
  • tools

Domestic items in a residential property are not eligible for capital allowance, but there is replacement relief available.

Capital allowances are not available for plant and machinery in a residential property, unless it is a furnished holiday let.

Losses

Property rental losses must be treated in the correct way so that they can only be carried forward and set against future property profits of the same property rental business.

Further Actions

Make sure that you use the toolkit to ensure that everything has been taken into consideration and nothing has been overlooked.

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