The tax aspects of property investment

Published by Bryan Elkins on 6 September 2019

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When considering the possibility of letting a residential property it is important to understand the tax implications, as they can be lucrative.

As the owner of a buy to let property you are subject to Income Tax on the difference between the rental income you receive and the costs you incur. Where you own the property jointly any taxable profits generated from the property are split between you, based on the proportion of the property you own. Where the property is owned between you and your spouse or civil partner the split of income is automatically 50/50 irrespective of how the beneficial ownership of the property lies, unless an effective election is made.

To minimise your tax liabilities you need to ensure that you are deducting all the appropriate costs against your rental income, which can include agent fees, insurance, mortgage interest (subject to the new interest restrictions), repair and maintenance costs, gas safety certificates and similar fees. You can also deduct any other expenses incurred specifically for the running of the property.

As well as expenses incurred whilst there is a tenant living in the property, in some cases you are also able to deduct expenses against any rental income in the periods of non-occupation. Costs in preparing the property for letting are generally allowable and accounted for as if incurred on the first day the tenant moved in. Expenses relating to the general maintenance of the property in between tenants are also allowed, for instance decorating the property to bring it up to the standard it was before the previous tenants moved in.

A cost can either be revenue or capital in nature. Capital expenditure is not deductible against rental income but instead will be relievable when the property is sold. Differentiating between revenue and capital expenditure can sometimes be difficult as there is a level of subjectivity to be applied. It is always very important, therefore, to consider any repair and maintenance work carried out on the property in detail before a claim is made.

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