Landlord tax returns are often a cause of heartache and frustration – for property investors who make simple mistakes and end up tussling with HM Revenue & Customs.
HMRC has a list of points that will be checked on the landlord tax return, so to make sure accounts and returns comply with tax scrutiny and to minimise the chance of a costly and time-consuming tax inquiry, make sure you address all the following points.
Property income receipts:
- Have all gross rents and other receipts from land and property been included as income?
- Have deposits been included as income as appropriate?
- If the property is in joint ownership, has profit or loss been divided appropriately?
- If rental properties are overseas, have profits or losses been treated properly?
- If there is commercial letting of furnished holiday accommodation in the UK or European Economic Area, have qualifying conditions been met?
- If surplus business premises are let and rent treated as a business receipt have the conditions been met?
Deductions and expenses:
- Have all items of expenditure on the improvement of an asset been treated correctly?
- Have legal and professional fees incurred in acquiring an asset been properly allocated?
- Has expenditure on essential repairs to a newly acquired property been treated correctly/
- Where expenditure occurred prior to the start of the rental business, have the conditions been met?
- Have capital repayments been excluded from loan interest and finance charges?
- Have ‘dual purpose’ expenses been apportioned in respect of property only partly used for rental business?
- If a vehicle has been used for non-business travel, including home to work, has only the business travel portion been claimed?
- Are all expenses claimed for business trips wholly and exclusively for the rental business?
- If wages and salary costs are claims, have employment taxes been paid?
- If wages or salaries are paid to relatives or connected parties, are the amounts commensurate with their duties?
- If a property has been let rent-free or below market rate has expenditure been restricted accordingly?
Reliefs and allowances:
- If wear and tear allowance is claimed has it been properly calculated/
- If rent a room relief is claimed does it meet the conditions?
- Has income over the rent a room exemption limit been treated as taxable rental income under the appropriate method?
- If capital allowances have been claimed does the expenditure qualify?
- Has the April 5th basis period been applied?
- Have any rental business losses been used correctly and set against the first available profits in full?
- Have only the appropriate rental business losses been set against general income?
- If a landlord is a non-resident has tax been deducted from rental payments?
- If box 21 in the property pages of the self assessment return been completed have the correct figures been included in box 20?
- If there was a disposal of rental property has capital gains tax been appropriately calculated.
This landlord tax return list comes from HMRC documents supplied to tax inspectors and accountancy professionals as a checklist of points to watch.