Are you paying the tax for Non Resident Landlords?

If your landlord is non resident or let property for a non resident landlord you will need to deduct tax at source

The Non-resident Landlord Scheme

A landlord who lives abroad for more than 6 months of the year must pay tax on any income they get from renting out property in the UK. If the landlord is a company or trustee, the rules about their usual place of abode apply.

The tax is collected using the Non-resident Landlord (NRL) Scheme.

The tax can be paid by either:
# a letting agent
# the tenant
If the landlord is a joint owner, tax is paid on their own share of rental income.

Tenants

If your landlord lives abroad and you pay over £100 a week, you need to register with HMRC and deduct tax from your rent.
You also need to register with HMRC if you pay a UK representative of your landlord, such as a friend or family member, who isn’t a letting agent.

You don’t need to deduct the tax if HMRC has told you in writing that the landlord can receive the rent with no tax deducted, but you must still register with HMRC and complete an annual report.

Letting agents

If you’re a letting agent you must operate the Non-resident Landlord Scheme no matter how much rent you collect, unless HMRC has told you in writing that the landlord can receive the rent with no tax deducted. You may still need to register and complete an annual report.

You’re considered a letting agent under the scheme if you:
help the landlord run their UK rental business
receive their rent or control where it goes
live in the UK for more than 6 months a year
A letting agent can be an estate agent, solicitor, accountant or friend of the landlord. You’re not a letting agent if you only give a landlord legal advice or services.

Rental income can include money received for a wide variety of things such as:
letting furnished, unfurnished, commercial and domestic premises or land
use of the furniture in a rented property
the grant of certain leases
sporting rights, such as fishing and shooting permits
allowing waste to be buried or stored on land
allowing others to use the property – for example, where a film crew pays to film inside a person’s house
grants to help with allowable expenses, such as repairs
enterprise investment schemes
caravans or houseboats that are not moved around
insurance policies for non-payment of rent
service charges

What you need to do

1. Register with HMRC within 30 days.
Letting agents should use form NRL4i.
Tenants should write to HMRC. Give your own name and address and that of your landlord and state that you wish to register for the Non-resident Landlord Scheme.

2. Work out and pay the tax.Send payment within 30 days of the end of each tax quarter – 30 June, 30 September, 31 December and 31 March.

3. Send a report each year by 5 July to HMRC and the landlord using form NRLY.

4. Provide the landlord with a certificate NRL6 each year by 5 July.

5. Keep records for 4 years.
You need to keep records of:
rent you’ve received (or paid, if you’re a tenant), with dates and amounts
correspondence with the landlord if you’ve contacted them about where they usually live
expenses you’ve paid, with dates, amounts and descriptions of the expenses, along with copies of invoices and receipts

https://www.gov.uk/guidance/paying-tax-on-rent-to-landlords-abroad

steve@bicknells.net

Rent a Room – What if Rent exceeds £7,500?

Many people think that Rent a Room is a tax free allowance, a bit like the personal allowance, but its not quite as simple as that.

If your total rent from a room in your home is less than £7,500 then that’s fine, but if your rent is above £7,500 these rules will apply

3.2 If your gross receipts are more than the Rent-a-Room limit

If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax:

Method A

You pay tax on your actual profit – your total receipts less any expenses and capital allowances.

Method B

You pay tax on your gross receipts over the Rent-a-Room limit – that is, your gross receipts minus £7,500 (or £3,750). You can’t deduct any expenses or capital allowances if you choose this method.

HMRC will automatically use your actual profit (Method A) to work out your tax.

If you want to pay tax using Method B, you need to tell HMRC within the time limit. You will continue to pay tax on your gross receipts over the Rent-a-Room limit until you tell HMRC that you want to change back to paying tax on your actual profit (Method A).

If you pay tax using Method B, this automatically stops if your rental income drops below the £7,500 (or £3,750) limit.

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2017

So in most cases if you have rent above £7,500 you probably won’t want to claim Rent a Room because you will not be able to offset any expenses!

steve@bicknells.net

Can my Staff have tax free living accommodation?

Emergency Mobile Application

In general providing living accommodation to employees is treated as a taxable benefit in kind with the benefit value based on the cash equivalent.

HMRC Helpsheet 202

The main occupations which satisfy the rules for exemption are:

• agricultural workers living on farms or agricultural estates

• lock-gate and level crossing gatekeepers

•caretakers who live on the premises for which they are responsible where

they are on call outside normal working hours

•stewards and greenkeepers who live on the premises they look after

•managers of public houses who live on the premises

•wardens of sheltered housing who live on the premises where they are on

call outside normal working hours

•police officers and Ministry of Defence police

•prison governors, officers and chaplains

•clergymen and ministers of religion, unless engaged on administrative

duties only

•members of HM Forces

•members of the Diplomatic Service

•managers of newspaper shops that have paper rounds

•managers of traditional off-licences, that is, those with opening hours

equivalent to a public house

•in boarding schools where staff are provided with accommodation on

or near the school premises – the head teacher, other teachers with pastoral

or other irregular contractual responsibilities outside normal school hours

(for example, housemaster), bursar, matron, nurse and doctor

•veterinary surgeons who live close to the practice in order to respond

regularly to emergency calls

•managers of camping and caravan sites living on, or near to, the premises

•stable staff of racehorse trainers, who live on the premises and certain key

workers who live close to the stables.

The Test

Basically the test is based on ‘necessary’ and ‘customary’ https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim11300

The test is only satisfied where the employee can demonstrate that occupation of the particular property (as opposed to any other property) is essential to the proper performance of the duties of the employment.

Support for this view can be derived from Langley and Others v Appleby (53TC1), in which Fox J said at page 21
if it is asserted that it is essential for the servant to occupy the house in order to perform his duties, it seems to me that the servant must establish affirmatively that for the performance of his duties he must live in that house and no other.
The words “that house and no other emphasise the strict nature of the test.

An employee may claim that it is necessary to occupy a particular residence because the employer requires the employee to live there. This is not enough to satisfy the test. It must be shown that the duties of the employment require occupation of the residence. An argument that the employee cannot afford to live elsewhere is not sufficient, see Vertigan v Brady (60TC624).

Rent Allowances and Deductions

It is common for an employee to:

own the property he lives in, or
rent the property from a third party, not his employer.

In both cases the employer may pay the employee extra salary or a rent allowance to help with the accommodation costs. This extra salary or rent allowance will count as earnings under Section 62 ITEPA 2003

An employer may own or rent accommodation and provide it to an employee. If the employee is entitled to a fixed wage or salary from which sums are deducted by the employer in respect of the accommodation then the fixed wage or salary is earnings under Section 62 ITEPA 2003. No deduction is allowed from earnings for the deductions made by the employer. See Cordy v Gordon (9TC304) and Machon v McLoughlin (11TC83)

steve@bicknells.net

Rent a Room and earn £7,500 tax free

Fotolia_45741373_XS cash

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 a room or an entire floor.

How it works

The tax exemption is automatic if you earn less than the threshold. This means you don’t need to do anything.

You must complete a tax return if you earn more than the threshold. From 6 April 2016, this is £7,500. For the 2015 to 2016 tax year, the threshold was £4,250.

When you can use the Rent a Room Scheme

You can use the scheme if:

you let a furnished room to a lodger
your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning

When you can’t use the Rent a Room Scheme

You can’t use the scheme if the accommodation is:

not part of your main home when you let it
not furnished
used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
in your UK home and is let while you live abroad
the whole of your home, rather than a part of it

SpareRoom

SpareRoom, the UK’s busiest flatshare site. Every three minutes, someone finds a flatmate with SpareRoom.

The table below shows the change in monthly rents between 2009 and 2014 according to Spareroom:

	Ave Rent 2009 (£)	Ave Rent 2014 (£)	Rental Increase %
London & suburbs	£549	£691	25.8%
East Anglia	£345	£398	15.4%
East Midlands	£314	£353	12.6%
North England	£304	£334	9.8%
North West England	£316	£359	13.8%
South East England	£390	£449	15.2%
South West England	£347	£394	13.7%
West Midlands	£334	£366	9.7%
Yorkshire & Humberside	£312	£347	11.3%
Northern Ireland	£238	£260	9.5%
Scotland	£325	£403	24.2%
Wales	£302	£332	9.9%
UK	£500	£550	10%

Extra 3% Stamp Duty on Buy to Lets – but what if you have a property company?

A 3% surcharge on stamp duty when some buy-to-let properties and second homes are bought will be levied from April 2016.

This means it will add £5,520 of tax to be paid when buying the average £184,000 buy-to-let property. The new charge would have hit 160,000 buyers if it had applied last year.

George Osborne said the new surcharge would raise £1bn extra for the Treasury by 2021.

But, commercial property investors, with more than 15 properties, are expected to be exempt from the new charges.

Stamp Duty on Selling Shares is 0.5% so why aren’t more investors buying property into companies and then selling the shares in the company!

See my blogs, click to read

5 reasons why you need a Property Investment Company!

10 ways to pay less Property Tax (Investors)

steve@bicknells.net

Is a Company the best way forward for Buy to Lets?

The Summer Budget made this decision even more complicated!

First landlords have a lot to consider..

Transferring their portfolio will probably incur Stamp Duty and Capital Gains
Mortgages can be harder to find and more expensive for companies
Share ownership options and objectives
Company Admin, Accounts and Tax
Capital Gains Allowances, ATED and IHT

But one key advantage is explained by Adrian Benosiglio, real estate tax partner at Baker Tilly (www.yourmoney.com)

For example, Mr Jones (a 45% taxpayer) has a house with net rental income of £100,000 and mortgage interest of £90,000. Currently he would pay £4,500 income tax on profits of £10,000.

From April 2020, he’ll pay £27,000* income tax. This is calculated by applying his marginal rate of tax to his rental income (£100,000 x 45%) which gives a tax liability of £45,000 and offsetting this with tax relief claimed on the mortgage interest at the lower amount of 20% (90,000 x 20%) which would give tax relief of £18,000. This would leave Mr Jones with a tax bill of £27,000 (£45,000 less £18,000). The end result would be an overall annual loss after tax of £17,000, with insufficient cash flow to make repayments on his loan.

A company is not affected by these measures and therefore would receive full mortgage interest relief. Additionally, corporation tax is charged at 20% and is due to fall to 18% in 2020. Using the above example, a company would pay £2,000 currently and £1,800 from 2020; leaving sufficient funds to make repayments.

Complicated isn’t it!

steve@bicknells.net

Is it time to get a lodger?

Renting out a Room is a great way to earn some tax free cash and in the Summer Budget an increase in the tax free allowance was announced…

The government will increase the Rent-a-Room relief from £4,250 to £7,500 a year from April 2016. The value of this relief has been frozen since 1997, so this increase will allow individuals who rent a room in their main residence to do so tax free on income up to £7,500 to reflect increases in rent.

You can use the scheme if:

you let a furnished room to a lodger
your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning

You can’t use the scheme if the accommodation is:

not part of your main home when you let it
not furnished
used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
in your UK home and is let while you live abroad
the whole of your home, rather than a part of it

You can get further details in HS223

Finding a lodger shouldn’t be too difficult and websites like Spare Room can help.

steve@bicknells.net

Buy to Let – Facts, Tax and Ways to increase your return

House prices are rising as confirmed by the Land Registry in their report 29 April 2013, the annual change is 0.9%, rent is increasing again after a drop in 2009 according to the English Housing Survey, in 2011 it went up 3% to a mean rent after housing benefit of £132 per week. So let’s see who the tenants are (English Housing Survey 2011):

social and private renting households receiving Housing Benefit
	all social renters	all private renters	all renters
			percentages
age of household reference person
16 to 24	6.3	11.9	7.8
25 to 34	12.6	26.9	16.5
35 to 44	18.1	24.0	19.7
45 to 54	16.3	15.8	16.2
55 to 64	14.1	9.0	12.7
65 to 74	15.8	7.8	13.6
75 and over	16.7	4.4	13.4

marital status of household reference person
married¹	16.9	18.4	17.3
cohabiting²	5.5	9.7	6.7
single	33.2	37.6	34.4
widowed³	17.1	7.5	14.5
divorced⁴	20.9	17.0	19.8
separated⁵	6.4	9.9	7.3

household size
one	50.5	31.7	45.4
two	23.2	28.7	24.7
three	11.5	18.0	13.3
four	8.2	12.3	9.3
five	3.6	5.8	4.2
six or more	3.0	3.4	3.1

household type
couple, no dependent child(ren)	11.5	8.0	10.5
couple with dependent child(ren)	10.1	19.2	12.5
lone parent with dependent child(ren)	20.9	35.1	24.7
other multi-person household	7.1	6.0	6.8
one person	50.5	31.7	45.4

length of residence
less than 1 year	8.4	27.7	13.6
1 year, under 3 years	15.4	32.5	20.0
3 years, under 5 years	13.2	15.5	13.8
5 years, under 10 years	20.7	12.3	18.4
10 years, under 20 years	22.2	8.0	18.4
20 years or more	20.1	*	15.7

economic activity of
household reference person
full time work	2.7	13.1	5.5
part time work	9.5	18.1	11.9
retired	36.4	16.0	30.8
unemployed	13.8	17.4	14.8
full time education	*	*	1.5
other	36.4	32.9	35.5

total	2,395	890	3,285
			£ per week
mean gross weekly income
of household reference person	206	237	215
(and partner)

sample	1,945	690	2,635

Yields are looking good, its possible to achieve 8% to 10%, take a look at the examples on http://investors.assetz.co.uk/property-listing.htm

Lending rates are low with Bank of England base rate stuck at 0.5%.

So we should see Buy to Let coming back into fashion with investors, with that in mind here are my top tips to minimise your tax:

1. Claim allowable expenses

Mortgage or Loan Interest (but not capital)
Repairs and maintenance (but not improvements)
Decorating
Gardening
Cleaning
Travel costs to and from your properties for lettings or meetings
Advertising costs
Agents fees
Buildings and contents insurance
Ground Rent
Accountants Fees
Rent insurance (if you claim the income will need to be declared)
Legal fees relating to eviction

2. If the property is furnished claim for Wear & Tear, you can claim 10% of the rent each year

3. Claim for repair and advertising expenses incurred in getting the property ready for renting

4. Consider how the property is owned for example your partner may pay less tax or if you own it 50/50 you could use their capital gains tax exemption on sale of the property

5. Consider whether owning the property within a limited company might be better, Corporation Tax is 20% for small companies in the UK which can make dividends more tax efficient than personal income.

6. Make sure any borrowings you have are on the Buy to Let so that you can claim tax relief on the interest

7. Claim the Energy Saving allowance for energy saving work and save £1,500

steve@bicknells.net