All rental income received by an individual from UK properties, whether furnished or unfurnished is now assessed under Schedule A.
Since an individual must report his income on a tax year basis, he must draw up accounts to 5th of April.
Landlords must calculate Schedule A income in accordance with commercially accepted accounting principles. Income is assessed as the “proportion of rent earned in the year from tenants” use of the property, and expenses are allowed only if they satisfy the wholly and exclusively” rule for business purposes.
Examples of expenses normally allowable in computing income for tax purposes include, (but not limited to the following):
Repairs and maintenance:
Painting and decorating, repairing cookers, damp treatment etc. (Note that substantial repairs carried out shortly after a landlord has acquired a property to put it into a fit state to let out are normally not allowed, but are instead considered as capital expenditure. This is also the case with expenditure on improvements.)
10% Wear and tear allowance:
For furnished lettings Replacement furniture and fittings is considered as an allowable expense. As an alternative however, a standard wear and tear allowance can be claimed each year. This is calculated by reference to 10% of the net rents receivable after deducting charges or services normally borne by the tenant but are in fact borne by the landlord such as council tax.
A landlord can claim a deduction for rent that is due to him, but has not been paid and is clearly irrecoverable.
Non Resident landlords:
The rents for land lords not living in the UK who own a property in the UK is covered by the non residence land lord scheme. (Unless permission is received from HMRC in writing that they are not required to operate the scheme).
The letting agents (the tenant in the absence of a letting agent), will be required to:
- deduct tax from the landlord’s UK rental income and pay the tax over to HM Revenue & Customs
- The scheme is operated from the 1st April to 31 March and the letting agent or tenant who operates the scheme must account for the tax quarterly.