| Income Tax |
The income that you receive from letting property, whether furnished or unfurnished, is generally regarded as unearned income by the Inland Revenue, regardless of your employment status.
However, as we have already mentioned, you are only liable to pay income tax on the profit generated from letting, after deductions made for ‘allowance expenses’.
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| www.corgi-gas.com |
For further information please cal CORGI on 01256 372 200 or visit www.corgi-gas.com |
| allowance expenses |
The general rule as to whether an expense is an allowance deduction from income is to ask the following two questions:
1- Is it an expense of income?
2- Was it incurred ‘wholly and exclusively’ for the purposes of renting the property?
The first question generally rules out any capital expenditure. However, whether this applies to renovations depends on the extent of repair in each particular case. If a property is in a condition suitable for letting when it is acquired then renovations such as redecorating will usually qualify as allowable expenses. However, if a property is
acquired at a low cost and requires a great work before it can be let then it will usually
be classed as a capital expenditure and not an allowable expense that can be set
against rent received. As a general rule, where there is an element of improvement then such expenditure will be treated as capital.
The second question rules out any situation where a landlord benefits personally from the expenditure. For example, decorating materials purchased and used at the
landlord’s private home are not an allowable expense.
Whilst you cannot charge for your own time spent collecting rents and managing properties, payments made to others for this purpose (even family members) are allowable expenses if actually performed and recorded. This includes the cost of employing a letting agent such as our selves.
Examples
The following types of expenditure are usually regarded as ‘allowable expenses’:
• Interest paid on loans taken out to purchase the property
• Travel expenses incurred by inspecting the property and/or collecting rent.
• The cost of building and contents insurance.
• Maintenance expenses.
• Leasehold expenses (such as ground rent or management company charges).
• Water rates and council tax.
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| Building And Structural Condition |
As landlord you are legally responsible to keep in repair the structure and exterior of the property and keep in repair and proper working order the installations in the property for the supply of water, gas, electricity, sanitation and for space and water heating. Repairs and maintenance are at the landlord’s expense unless misuse can be established. Also, interior decorations should be in good clean condition and preferably plain, light and neutral. |
| Capital Gains Tax |
Capital Gains Tax (CGT) is not usually payable on a private individual’s own home, but
is payable on most property that is let. As landlord, your liability for CGT is on the profit made when your property is sold.
You will be exempt from paying CGT if the let property is sold within 3 years of being purchased. If this exemption does not apply, then you will pay CGT for the amount of
time that the property was not your ‘principle residence’ (where you actually live).
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| Cleaning |
At the commencement of the tenancy the property must be in a thoroughly clean condition and at the end of each tenancy it is the responsibility of the tenant to leave the property in a similar condition. Where they fail to do so, cleaning will be arranged at the tenant’s expense. |
| Consumer Protection – Fire Safety |
The Furniture and Furnishings (Fire) (Safety) Regulations 1998 (amended 1989 & 1993) provide that specified items supplied in the course of letting property must meet
minimum fire resistance standards. The regulations apply to all upholstered furniture, beds, headboards and mattresses, sofa-beds, futons and convertibles, nursery furniture, garden furniture suitable for use in a dwelling ,scatter cushions, pillows and non –original covers for furniture. They do not apply to antique furniture or furniture made before 1950, bedcovers including duvets, loose covers for mattresses, pillowcase, curtains, carpets or sleeping bags.
Items that comply will have a suitable permanent label or swing ticket attached. Non-Compliant items must be removed before the tenancy commences.
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| Council Tax |
Every property in the UK has a yearly council tax rate that is calculated using the value of the property, the number of occupants and the financial status of those occupants. It is the responsibility of the tenant or tenants to pay council tax due on a property. There are exemptions and reductions available to single occupants and students upon application to the local council.
As part of our service, we arrange for the transfer of council tax to the tenant and between successive tenants.
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| Electrical Safety |
Under the Electrical Equipment (Safety) Regulations 1994, and certain other regulations, electrical appliances and equipment provided in tenanted premises must be safe. It is therefore necessary to make a visual check to ensure that all electrical items, plugs and leads appear completely safe and undamaged , removing or replacing any faulty items.
In particular, each item should be:
• Well maintained, complete and in full working order.
• Supplied with a mains lead in good condition without wear, fraying or joining repairs and that it is secure at both the plug and appliance.
• Accompanied by user instructions, guidelines and warnings.
• Fitted with the correct plug pf the latest approved type (BS 1363) with sleeved live and neutral and also fitted with the correctly rated fuse.
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| Furnished or unfurnished |
The majority of properties on the letting market are ‘unfurnished’. A good working definition of this term is that it will usually include carpeting or flooring, curtains/blinds and a cooker. A ‘partly furnished’ property will usually contain the usual ‘white good’ kitchen appliances such as washing machine and fridge. We recommend that you leave only minimum furnishings and that these should be of reasonable quality. Any items to be left should be in the property during viewings. Personal possessions such as ornaments, pictures and books should definitely be removed from the premises, especially those of financial or sentimental value. Some items may be boxed, sealed and stored in the loft at the owner’s risk. All cupboards and shelf space should be left clear for tenants own use. |
| Furnished properties |
Special rules apply to furnished properties where, technically, the cost of providing furniture and fittings is a capital expenditure and therefore not an allowable expense. However, the Inland Revenue offers landlords two options to offset such expenses for
this type of property.
The first and most popular option is permitting the landlord to deduct a 10% wear-and-tear allowance, calculated on the rent net of any council tax or rates.
Alternatively, you may deduct the full cost of replacing items on an ‘as you go’ basis as and when is necessary.
It is important to remember that the original outlay for furniture and fittings is not allowable – only replacements for damaged or worn-out items. Also, once you have chosen one option for offsetting this expenditure then you are not allowed to change to the other as and when it suits.
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| Gardens |
Gardens should be left neat, tidy and rubbish free, with any lawns cut. Tenants are required to maintain the gardens to a reasonable standard, provided they are left the necessary tools. However, it you have very high standards for your garden or if it is particularly large then you may wish for us to arrange visits by a regular gardener. |
| Gas safety |
It is the responsibility of you the landlord to ensure that gas fittings and flues are maintained in a safe condition at all times. All gas appliances must be services in accordance with manufacturers instructions and by a CORGI registered engineer.
Under the Gas Safety (Installation and Use) Regulations 1998 all gas appliances and
flues in rented accommodation must be checked for safety within 12 months of being installed and thereafter at least 12 months by a CORGI registered gas installer.
You MUST therefore ensure that an annual gas safety check is carried out and that certificate is issued to the tenant for gas appliances, flues and associated paperwork.
Full records must be kept for at least 2 years of the inspections of each appliance and flue. These must include records of any defects found and of any remedial action taken.
A copy of safety certificate issued by the engineer must be given to each new tenant before their tenancy commences or to each existing tenant within 28 days of the check being carried out.
For a more detailed explanation please refer to the Gas Safety section of this pack.
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| Gas safety – letting and the law |
We have devoted this section of your pack to the important topic of gas safety and how
it affects you the landlord.
The health risks of poorly fitted or maintained gas appliances and flues cannot be underestimated and failure to fulfil your duties as landlord could result in fines of up to £5000 for each offence. If a case is referred to the Crown Court then there is the possibility of receiving an unlimited fine and even a custodial sentence.
Worst of all, failure to maintain appliances correctly could result in a tragic and unnecessary loss of life.
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| hmrc.gov.uk |
For Further information pleas visit www.hmrc.gov.uk |
| Income Tax |
If you reside in the UK then it is your responsibility to inform the Inland Revenue of any rental income received and to pay any tax due on it. Before taking the decision to let your property, it is advisable to consult an accountant who can offer professional advise on tax matters. This will usually save you money in the long term. It is also useful to remember that income tax on rental incomes is charged on the profit received after the deduction of allowable expenses.
If you are not residing in the UK during the tenancy then we, as your agents, are required to deduct basic rate tax from any rent we collect on your behalf. You can apply to the Inland Revenue for an exemption certificate depending on your current tax situation. For more information please read the ‘Tax Matters’ section of this pack.
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| Information for the Tenant |
It is helpful to the Tenant if you leave a ‘useful information’ folder for them containing manuals and documentation for operating the central heating and hot water system, washing machine and any alarm system. It is also good to include details of when the refuse is collected. |
| Insurance |
You must ensure that you are suitably covered for letting your property under both your
buildings and contents insurance by informing your insurance company of any proposed letting. It is also wise to inform them that you will be instructing a letting agent to manage the property if that is the case. Remember that failure to inform your insurers of such information may invalidate any policy that you hold.
You will also need to make sure that your insurance policy covers you for public or third party liability. This covers claims against you arising from accidents due to defects at
your property. There are several specialist insurance products available for landlords that cover, for example, any legal expenses incurred form taking legal action against a tenant.
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| Inventory |
It is important that an inventory of contents and schedule of condition be prepared, in order to avoid misunderstanding or dispute at the end of the tenancy. Without such safeguards, it will be impossible for you to prove any loss, damage, or significant deterioration of the property or contents. In order to provide a complete service, we will, if required, arrange for a member of staff to prepare an inventory and schedule of condition, at the cost quoted in our List of Charges. |
| Keys |
You should provide one set of keys for each tenant. Where we will be managing your property we will arrange the have duplicates cut as required. |
| Landlord Duties |
• Ensure that gas fittings and flues are maintained in a safe condition at all times. All gas appliances must be serviced in accordance with manufacturers instructions and by a CORGI registered engineer.
• Safety check all gas appliances and flues in rented accommodation within 12 months
of being installed and thereafter at least every 12 months by a CORGI registered gas installer.
• Ensure that an annual gas safety check is carried out and that certificate is issued to
the tenant for all gas appliances, flues and associated pipe work.
• Keep full records for at least two years of the inspections of each appliance and flue. These must include records of any defects found and of any remedial action taken.
• Give each new tenant a copy of the safety certificate issued by the engineer before the tenancy commences or to each existing tenant within 28 days of the check being
carried out.
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| Leasehold Property |
If you are a leaseholder you should check the terms of your lease and obtain the necessary written consent from the Freeholder or the Management Company for the building before letting your property. |
| Losses |
If expenses and capital allowances for any year are greater than the rental income received then you have suffered a loss on your investment for that year.
You are not allowed to set this loss against other forms of income and instead you must carry it forward to set against the profits of future years.
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| Maintenance Requirements |
Work carried out on gas appliances, flues and associated pipe work in the premises
must be completed by a current CORGI-registered installer. They will carry on them a CORGI Photo Identification card that shows their photograph, registration number,
trading title and date when the card expires. On the reverse of the card it details the
areas of gas work that the installer is qualified to carry out.
If an appliance fails its safety check then the safety record must be updated with the
exact nature of the defect and what remedial action was taken. You must ensure that a CORGI-registered installer repairs the defect and that the equipment is safe before it is used again. You must never use or allow to be used any appliance that you have been told is unsafe until it is has been repaired in accordance with the requirements of the regulations.
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| Maintenance Responsibilities |
As landlord you are ultimately responsible for ensuring compliance with the requirements of the Regulations.
Where we are managing your property then we have a joint legal responsibility with you
to ensure that all checks, maintenance and repairs are completed. You can nominate a contractor of your choice or leave us to select from our one of highly recommended local contractors.
If you are managing the property yourself then it is entirely your responsibility to ensure compliance with the Regulations.
If the property is sub-let then the original landlord and the person sub-letting will usually share the legal duties imposed by the Regulations. It is important in such a situation to establish and allocate these duties with the tenant’s safety as the number one priority.
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| Mortgage |
If your property is mortgaged or you have a loan secured on the property then you Should obtain written consent from your lender prior to commencing with the letting.
They may require additional clauses in the tenancy agreement of which you must inform us and they will often charge a fee for giving their consent for the letting to take place.
In regard to mortgage payments, we recommend that these are always paid directly by you via standing order. |
| Non-Resident Landlords |
If you reside outside of the United Kingdom during the tenancy then you will still remain subject to income tax on rents received.
The Non-Resident Landlord Scheme requires us as your agent to deduct basic rate tax from any rent we collect on your behalf. However, you can apply to the Inland Revenue for approval to receive your rental income without tax deductions. This is submitted on a form that we can supply you with requesting you to state your current tax situation and obligations.
If this application is successful we will be able to collect your rent and pay it to you gross. Although the rent may be paid with no tax deducted it will still remain liable to tax, so if you are a non-resident then you must include it in any tax return that the Inland Revenue provides you with.
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| Other Goods |
Specific safety regulations exist for high-risk goods including gas cooking appliances, electrical equipment, upholstered furniture and nursery equipment .The General Product (Safety) Regulations 1994 state that goods must satisfy general safety provisions –essentially that they must be’ reasonable safe’.
The Consumer Protection Act 1987 reiterates this point stating that such goods supplied in the course of a business must be ‘reasonably safe’ and includes good that are both new and used.
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| Preparing your property |
Whether we manage your property or you choose one of our non-management packages it is important that your tenant feels comfortable in their new home and feels that they are receiving value for their money. A well-maintained property in good decorative order will help towards a smooth-running tenancy. This will also have a positive impact in the form of a potentially higher rental figure. Moreover, we have found that tenants are more inclined to treat a nicely presented property with great respect. |
| Reducing CGT Liability |
The capital gain generated upon sale is not simply the sum arrived at by subtracting the purchase price from the sale price. The following allowances can often reduce your liability:
• Annual exemption allowance - Every individual has an annual amount that is exempt from CGT. Where a property is in joint names then this allowance is doubled. The current annual allowance for CGT exemption is £8200.
• ‘Tapered relief’ - Applying to each complete year of ownership after the first two years, this allowance provides that the longer the property has been owned then the greater the discount on the taxable gain, subject to a maximum of ten years
• Capital expenditure on improvements - For example, installing central heating or upgrading to double-glazed windows. As long as these have not attracted relief as an income expense then such expenses are deductible.
• Professional fees – Charges made by solicitors, surveyors, financial advisers and mortgage specialists to facilitate the purchase and sale are also deductable.
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| Relevant Premises |
The duties under the Regulations in relation to the appliances, flues and associated pipe work provided for the tenant’s use apply to what is termed ‘relevant premises’. This means those that are occupied for residential purposes either under a licence, fixed term tenancy or aw lease as defined by the Regulations. In practise it covers any lease for a term of less than seven years. |
| Rental Guarantee Scheme |
When you sign up to our full management service you automatically qualify for this excellent scheme that offers you the landlord total peace of mind in relation to the receipt of rents from your tenant.
The scheme guarantees that up to £10,000 will be paid in lost rent for up to 6 months if the tenant cannot meet their rental obligations. It also offers up to £25,000 in legal expenses should action become necessary to obtain possession of the property.
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| Smoke Alarms |
All properties built since June 1992 are required to have been fitted with mains powered smoke detector alarms for new. Although there is no legislation requiring smoke alarms
to be fitted on other ordinary tenanted properties, it is generally considered that the common law ‘duty of care’ means that landlords are the agents could be liable should
be a fire cause injury or damage in a tenanted property where smoke alarms are not fitted. We therefore strongly recommend that you fit at least one alarm on each floor in
the hall and landing areas. Where possible we also recommend the provision of the fire extinguishers and /or fire blankets.
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| Tax matters |
When making the decision to let your property it is important to understand the tax implications that such an investment creates. This section is designed to act as a useful guide to help you understand your liabilities and responsibilities as landlord in relation to taxation. However, we are not accountants so we always recommend seeking professional tax advise where you are in any uncertainty. |
| Tenancy Agreement |
This is the legal document that specifies the terms and conditions that bind both landlord and tenant as parties to the agreement. It is effectively a contract between the landlord as owner of the rental property and the tenant for possession and use of the property in exchange for the payment of rent. We mostly produce Assured Shorthold Tenancy agreements for our landlords and these usually begin with a fixed initial period of 6-12 months. We provide comprehensive drafting service to make sure that your tenancy agreement covers everything eventually that may occur during the tenancy. |
| The Gas Safety Installation and Use |
These deal specifically with the installation, maintenance and recommend use of gas appliances, flues and associated pipe work in domestic and some commercial premises. The Regulations require such items, whether fixed or portable, that are provided for the tenant are safe to use. This includes appliances and flues serving ‘relevant premises’ such as a central heating boiler that although not installed in a property is used to heat it.
Items not covered under the Regulations’ safety check and maintenance requirements include appliances owned by the tenant, flues or chimneys that are connected solely to an appliances owned by the tenant and gas appliances used exclusively in an area of the premises designated and occupied for non-residential purposes. |
| Utilities |
Under our tenancy agreements it is usually the responsibility of the tenant to arrange and pay for utility services such as gas, electricity, telephone and television licence. Unless you specify otherwise the tenant will also be responsible for paying for the supply of water to the premises.
We will arrange for the transfer of utility accounts to the tenant and between tenants if your property is let again. Meter readings will be taken at the start and end of each handle all these matters for you, but it is usual for telecommunication providers to require instructions direct from both the landlord and tenant.
As landlord you are also responsible for all standing charges whilst the property is not subject to a tenancy agreement.
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| www.digita.com |
For tax information, news and forums visit www.digita.com |
| www.hmso.gov.uk |
Copies of the Gas Safety Regulations can be obtained on-line at www.hmso.gov.uk |
| www.transco.uk.com |
In case of a gas emergency contact TRANSCO on 0800 111999
(www.transco.uk.com)
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020 8570 9993 
Useful Information