Tax warnings for landlords

Tax is a complex area and it is essential that landlords seek advice from a specialist taxation and accountancy adviser. This will ensure a strategy is devised which best suits your individual needs. The list below aims to details things to be aware of.

This information has been written by TaxWriter Ltd for Mortgage Advice Bureau.

Warning #1 - A couple can only divide the property income from a let property between them if they both actually own a share in it.

Warning #2 - HM Revenue and Customs (HMRC) periodically write to landlords who may not have declared the income or gains from their properties on their personal tax returns. HMRC ask for details of the income and expenses from the property for the previous six years.

If you receive such a letter, you are not obliged to reply, but if you do not reply you may face a formal tax investigation.

Warning #3 - If you fail to retain tax-related paperwork and this leads to an incorrect statement in your tax return, you could be charged a penalty of up to 100% of the tax lost.

Warning #4 - HMRC do not permit you to revalue a let property while it is part of the letting business and take out the perceived increase in value (due to the revaluation) as surplus capital.

Warning #5 - The amount paid to your spouse or family member must be reasonable, and the wage must actually be paid, not just accrued in your property business accounts.

Warning #6 - The tax reliefs that could reduce the chargeable capital gains on property formerly used for Furnished Holiday Lettings (FHL) are complex. Ask a specialist tax adviser to confirm which Capital Gains Tax relief may be available before you finalise the disposal of the property.

Warning # 7 - The French and Spanish tax authorities appear to be actively investigating the large number of foreign owned homes, particularly British and German-owned properties. Initial enquiries are made with local letting agencies and the information collected is being passed back to the UK and German tax authorities.

Warning #8 - Take UK and local tax advice before setting up any special structure, such as a company to hold an overseas property. Such a property-holding company could affect the tax payable by your UK trading company.

Warning #9 - Linked transactions must have all the consideration aggregated to determine which SDLT band they fall in. Linked transactions are those with connected persons or that have the same vendor and purchaser.

Warning #10 - The VAT law is very complicated so it is best to ask your builder to get a ruling in writing from the VAT office of HMRC before the work starts.

Warning #11 - Items installed as part of the renovation which are not building materials will not qualify for the reduced rate, e.g. carpets and appliances.

For more details, download our free tax guide for landlords.