Ask the tax expert: Make the most of tax allowances

Mon 11 Jul 2016

Question: What tax allowances can I get as a landlord?

As an individual landlord subject to UK tax, you will usually be entitled to a tax free personal allowance, currently £11,000 as well as a savings allowance and a dividend allowance, which is available to offset against these sources of income if received in the tax year.

In relation to property; up until 5 April 2016 landlords letting furnished residential property were entitled to a Wear and Tear Allowance (WTA) which was calculated based on gross rents (less council tax and water rates if paid by the landlord) and covered the cost of providing and replacing moveable furniture, TVs, carpets, white goods, crockery etc.

As an alternative, landlords providing such properties were able to claim under the Statutory Renewals basis for the cost of replacing ‘tools’ with the initial cost of such items not deductible. ‘Tools’ for this purpose was very limited and only covered light bulbs and smoke detectors etc.

Since 6th April 2016, all landlords (providing furnished or unfurnished accommodation) now have to make a claim under the new renewals basis. To qualify for a revenue deduction you must have a residential property business and be replacing furniture, furnishings, household appliances and kitchenware that were already in use at this date.

Under the new rules, landlords providing furnished lettings will probably receive lower tax relief, however those providing unfurnished properties can benefit from tax relief on the replacement of items such as white goods, which they couldn’t do prior to 6th April 2016.

As well as the ordinary tax deductible expenses you may be able to benefit from other allowances. For example, Capital allowances (allowances against the cost of providing plant and machinery) are not typically available to residential landlords, although if you own a property with communal areas it may be possible to make a claim on certain items. Before any claim is made do ensure you get professional advice.

Where a property is owned within a company and you are a shareholder, you can benefit from the dividend allowance mentioned above, which gives you £5,000 of tax-free dividend income per annum, assuming you do not have dividends elsewhere.

A company could also contribute towards a personal pension which can benefit individuals. The payment is tax free to the individual and the company will get Corporation tax relief on any payment made. The level of pension contribution payable will have an impact on the tax position outlined above, so it is always important to get professional advice before any contributions are made.

If you were to invest in commercial property, then you could benefit from the use of a Self-Invested Personal Pension (SIPP). There are specific rules regarding the use of this structure, but if this vehicle is an option, then the income received and the capital growth will be free from tax.

Whatever your circumstance, it is important to make the most of any allowances available. By getting professional advice, you may be able to benefit from allowances which you had not appreciated were available.

For further information or guidance on tax matters please contact Jo White on 01403 253282 or email jo.white@krestonreeves.com.

Spofforths is the trading name of Kreston Reeves LLP

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