Property Income Pitfalls

William Buckland
January 8, 2019

With so many TV shows dedicated to buying, renovating and renting properties out it must be a subject that captures the interest of many. It looks to provide an exciting way to work and earn. Portfolios can be steadily increased and a legacy can be built.

Others fall into the role after buying a new home and keeping their first house for rental, a source of extra income and potentially it will increase in value over the years.

Recent years have brought a number of changes to tax rules around property income. As with any change is can be easy to be left behind and get caught out. Other pitfalls are somewhat common mistakes but can result in unwelcome tax consequences.

As an easy example, let’s say you decide to buy a rental property, you arrange the mortgage and find some good tenants. When it comes to preparing your accounts how much do you put in for mortgage cost? We’ll say you pay £650 per month to your mortgage provider...Do you claim the whole £650? Maybe you would like some more information before deciding. Of the £650, £550 is capital repayment, £100 represents interest.

Would you claim A- £650 B-£550 C-£100.........The answer would be C just the interest element.

The capital repayment does not come into the equation with our rental income. If and when the house is later sold, then we would deduct our purchase price.

Such an easy mistake could lead to big adjustments and corrections being required. Best that we avoid that pitfall.

Another area that at first glance can seem simple but maybe needs a closer more careful consideration is maintenance works. Will they qualify to be set against rental income or be added to the cost of the property for when it is later sold?

This will depend on whether the works are repairing or renewing an existing system to an equivalent standard. If it is an entirely new addition or a substantial upgrade it may well be a capital expense, and therefore not available to deduct from rental income.

Recent changes have also affected the way furnished properties are dealt with and restrictions in some cases on the amount of interest that can be claimed.    

If you would like to discuss rental accounts and how I could help you with these please give me a call or send a message.

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