If you let property and make a profit then the Government wants a share otherwise called taxation. The main types of letting are long-term and overseas and short-term furnished lettings (Holiday Lets). You can also be a party to a licence. This is often for a short period or maybe just to allow you to cross another’s land to gain access to your premises or for the right to lay a pipe for water. These are widely used in commercial situations.
Depending on the type the deductions for both Income Tax and Capital Gains Tax (CGT) are different.
Most types of letting are treated as income from an investment although a property management and investment business may be treated by the Inland Revenue as a trade.
Short-term Holiday lettings (Holiday Lets) are treated as a business.
The costs before the first letting starts can not be offset against the future rents so planning is essential. It may be advantageous to start the tenancy immediately but at a reduced rent and then make repairs whilst the tenant is in the building. This does not apply to holiday lets.
Did you know that if you lived in a house (as owners) before or after the letting and before sale there are reliefs that reduce the CGT payable.
How can we help
Each year you will have submit a self-assessment tax form and getting it right is very important because the Inland Revenue can ask you to prove that the contents are correct.
At sometime in the future you will be selling the building and will have to pay Capital Gains Tax. Good planning from when the property is bought can save thousands of pounds of tax on sale.
If you are not sure whether you need our professional help please contact us, it may be some initial help is enough. We are always happy to talk and help you.
Further Reading on Lettings
- The Rent a Room scheme, by Inland Revenue
- Letting your property, by Fairweather & Border
- Letting your property – what’s involved, by Birmingham Council
- Letting your property in Spain, by Idealguides Ltd
- The Complete Guide to Letting Property, by Hodgiskinson