Are you charging rent at the market rate?
Landlords tend to set their rent at the highest level they can get away with, sometimes advised by an agent or by researching similar rental properties in the area to ensure obtaining and securing a tenant is feasible.
Legitimate property expenses are deducted from property income, which results in a profit that is taxed by HMRC or a loss, which can be offset against future rental profits.
To be “legitimate”, expenses must be necessary to running the rental property and “wholly and exclusively” for that purpose.
HMRC are not able to advise and don’t have any stipulations around how much the market rent should or shouldn’t be, however, their powers do enable them to restrict the level of expenses that can be claimed for tax purposes.
For example, if a property is let at lower than market rent then expenses will be capped at the income level so in effect there is no profit or loss.
If a property is let rent free, expenses are technically non-deductible and there is no requirement to report for property tax. The only situation where this varies is if the landlord can demonstrate their intention to re-let the property at the market rate.
Figurit are able to advise regarding property tax as part of your overall tax planning strategy. Call today to discuss your requirements with a qualified accountant.
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