HMRC has updated its Property Rental Toolkit aimed at providing guidance on the errors that most commonly occur in relation to property rental in tax returns. The updated version of the toolkit, which was published at the beginning of May 2015, makes the following important points:
- Where a person receives rental income in different capacities (e.g. as an individual property owner and as a member of a partnership that lets property) letting in each of these capacities represents a separate rental business. A loss on one rental business cannot be set against a profit on another.
- Capital allowances can be claimed on certain items that belong to the landlord and are used within the property rental business, for example tools, ladders, motor vehicles (subject to any adjustment for private use), but cannot be claimed on plant and machinery on residential property unless it is a furnished holiday let.
- Deposits taken from tenants should be recognised in accordance with generally accepted accounting practice, normally by being deferred and matched with the costs of providing the services or carrying out repairs. Deposits not refunded at the end of a tenancy or amounts claimed against bonds should normally be included as income unless they have already been recognised.
- Repairs are allowable as a deduction against rental income, whereas any capital expenditure should be claimed, if appropriate, against any future capital gains when the property is sold
The updated guidance be helpful to anyone who is completing a self-assessment tax return as it outlines the risks associated with claiming expenses and capital allowances, and limits on offsetting earnings from buy-to-let properties