Residential Property Income: Are you making the most of your allowances?

Residential Property Income

7th June, 2022, Neil Gayton

Are you making the most of your allowances from your residential property income?

If you receive income from letting a room in your property or renting out another property permanently or as a holiday let, there are various reliefs and allowances that can be applied to your income to reduce your tax bill.

Neil Gayton, manager at our King’s Lynn office, examines the reliefs and allowances that you may need to consider when completing your tax return.

The Rent a Room Scheme

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.

You can let out as much of your home as you want. The tax exemption is automatic if you earn less than £7,500. If you earn more than this you must complete a tax return, you can then opt into the scheme at any time if you are a resident landlord or run a bed and breakfast or guest house and claim your tax-free allowance on your tax return.

You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.

You cannot use the scheme for homes converted into separate flats.

Property Income Allowance

If you are a landlord earning rental income from your property you can get up to £1,000 rental income tax-free each year from Property Income Allowance.

If you earn less than £1,000 from rental income, you don’t need to do anything. However, if you claim the Property Income Allowance, you cannot claim any other rental expenses.

If you own a property jointly with others (spouses, civil partners, etc.), you can each claim this £1,000 allowance – even though you divide the rental income between yourselves.

If you’re renting out a buy-to-let or a second property, usually your expenses are higher than £1,000 a year, so only use this allowance if you can’t find your receipts or if in one year you somehow have just a few expenses.

Residential Finance Costs

Relief for finance costs on residential properties is restricted to the basic rate of Income Tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

When completing a tax return for income from a residential property it is possible to bring forward losses from previous years.

There are many things to consider when using a residential property for income purposes.  At Stephenson Smart we are experts in helping people fully understand their liabilities.  Please get in touch if we can help you.

Profile: Neil Gayton

Related articles: Furnished Holiday Lettings

Tax Investigations

Stephenson Smart: Tax Investigations

9th April, 2019, Melanie Harriss

Being subject to a tax investigation from HMRC can be a stressful and worrying experience.

Let us guide you through with our tax investigation service.

What Does A Tax Investigation Involve?

Contrary to most UK law, in a tax investigation, you are required to “prove your innocence”. It is not unheard of for an enquiry to last several years and we regularly see Inspectors trawling through not only the business records but also personal expenditures such as grocery shopping, holidays and car expenses to identify potential discrepancies.
Personal tax clients are not immune either as the tax authorities regularly select individuals for investigation based on its view that they have “the means to pay”.

Regardless of your circumstances, this work is extremely technical and will require significant time by a tax expert in order to resolve the matter with the Inspector.

Disappointingly, HMRC does not consider your costs when conducting its investigations and even a basic tax enquiry can result in thousands of pounds in professional fees.

How Can Stephenson Smart Help?

At Stephenson Smart, we offer our clients an annual subscription to our Tax Investigation Service.
By subscribing to our comprehensive Tax Investigation Service, the cost of full professional representation by our experts will be covered in the event that you are investigated. We will ensure that you do not have to simply concede to the Inspector’s demands and will “fight your corner” without you worrying about the fees.

As a further benefit of the service, you will have unlimited 24/7 access to an expert Business Legal Helpline, which can answer queries relating to Employment Law, Health and Safety matters and commercial issues.

Unfortunately, we cannot protect you from being selected for a tax investigation enquiry, but we can ensure you have experts to help you through it with ease.

Self Employment & CIS

Self Employment & CIS

25th February, 2019, Melanie Harriss

Self-employment Tax Returns

If you’re self-employed, let Stephenson Smart save you time by helping with your tax returns.

We can offer a complete solution meeting all filing deadlines with HM Revenue & Customs, while minimising taxation at every possibility.

Our self-employment tax experts can advise on the benefits and pitfalls of various business structures such as sole trade, partnerships, limited liability partnerships or Companies and offer a tailored solution to meet your needs.

We can assist you in every aspect of managing your self-employed business from bookkeeping, automatic enrolment for pensions, real-time information filing for payroll, advice on growing your business and completion and submission of self-assessment and partnership tax returns on an individual basis.

We understand that each client and business is different and we will work with you to ensure your business achieves its full potential. We have knowledge and experience of working with self-employed individuals in many sectors and in particular, we could offer the following services:

  • Complete tax returns
  • Calculate any tax liability
  • Advise on CIS tax returns
  • Advise you on exactly when to make payments and how much to pay

CIS Tax Returns

The current Construction Industry Scheme (CIS) was introduced to handle the taxes of self-employed contractors within the construction industry. It covers any work carried out within the UK and includes work such as bricklaying, plastering, decorating, and extensions.

If you’ve registered for CIS, your taxation rate will be 20%. If you haven’t registered, it rises 30%. To ensure you’re paying the correct amount of tax, you must complete and submit a CIS tax return. CIS is a complex area and as a result, many contractors have overpaid their CIS tax returns in recent years and are due tax rebates. If you think you may be one of them, call us today to speak to one of our advisers.

Capital Gains Tax

Capital Gains Tax

25th February, 2019, Melanie Harriss

Let Stephenson Smart help reduce your capital gains tax bill.

Capital Gains Tax was introduced in 1965 and is a tax on the gain or profit you make when you sell, give away or otherwise dispose of something.

In most cases, it’s best to employ an accountant to advise you – and this is where we come in.

The most common scenarios are the sale of assets. Other events can also trigger capital gains tax like gifting an asset, selling assets gifted to you, a beneficiary becoming absolutely entitled to trust property, gains made by personal representatives of an estate in administration and in some instances, divorce and separation.

We can advise you whether your disposal will be subject to capital gains tax as some assets are outside the charge to capital gains tax.

As with all tax planning it is beneficial to plan ahead and our specialist team can provide you with capital gains tax advice to calculate, minimize, defer or even wipe out a potential charge to capital gains tax.

We seek to get to know you well so we can use that knowledge to make capital gain tax planning part of our on-going service to you. If we do not know your circumstances, the areas we would look at with you are:

Allowable Expenses

The amount of taxable gain can be reduced by other allowable expense in addition to the acquisition cost or deemed market value of the asset.

Annual Allowance

You have an annual tax-free allowance for Capital Gains Tax known as the ‘Annual Exempt Amount’.

We can assist you to maximise this exemption by considering:

  • How many annual exemptions are available in your household, whether joint ownership would result in a reduced taxable gain and if you could benefit from an exempt transfer
  • How the timing of your disposal will affect the taxable gain
  • The interaction of your annual exemption with any capital losses brought forward

 Rates of Capital Gains Tax

The capital gains tax rate you pay tax at will depend on whether you are:

  • An individual, the rate is then dependent on the total amount of taxable income and gains during the year of disposal. It may therefore be possible to consider altering your remuneration during the year of disposal to reduce the amount of capital gains tax payable
  • Trustees and personal representatives pay at one rate regardless of the level of trust income

 Capital Gains Tax Reliefs

Reliefs are available to reduce and defer a chargeable gain. We would consider the requirements of the reliefs and whether you are able to claim them or if you could make any changes to your position in order to benefit from the reliefs.

A relief we advise on often is entrepreneur’s relief, which reduces the rate of Capital Gains Tax payable for clients who run their own businesses.

Capital Gain Tax on property is a concern to most people. Relief is usually available when you sell your own home, but we can also use this relief to cover the sale of part of your garden as a building plot, when you have more than one home or have rented part or all of your home.

We are also able to help you defer the crystallisation of a gain when you incorporate your business or dispose and reinvest in business assets or invest in enterprise investment schemes.

If we can help you with your Capital Gains Tax please get in touch.

Investments & Pensions

Investments and Pensions

25th February, 2019, Melanie Harriss

At Stephenson Smart we are able to provide you with the best advice regarding your investments and pensions.

With a complicated and strictly regulated financial services market, independent financial advice requires specialist knowledge.

We make use of our wide range of professional contacts to ensure you have a suitable independent adviser to provide you with impartial advice in areas such as pension schemes, life assurance, critical illness cover, private medical insurance and care plans, and individual savings accounts and investments.

 

Top Slicing Relief

Top Slicing Relief may be available after the encashment of certain life insurance policies and investment bonds to reduce the amount of tax payable on the gain.

Bonds offer investors tax deferral on investment growth until a ‘chargeable event’ such as encashment occurs, potentially creating a chargeable event gain. This gain will be taxed as income in the tax year of encashment which could result in a large tax liability, which may not have occurred had a small amount of the gain been taxed in each year the bond had been held. Top Slicing Relief aims to correct this by reducing the tax liability. Eligibility will depend on income levels in the year of the chargeable event gain.

This is a very complex area of tax. If a chargeable event gain has arisen on your insurance policy or investment bond, please do not hesitate to get in touch.

Page 2 of 2

Stephenson Smart News