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The Most Frequently Asked Questions about Buy to Let Tax?

Aug 17, 2007
Is the income earned from renting out your property taxable?

Yes buy to let tax is applicable on the income which you earn from a buy to let property and will need to be declared in full when filling out your tax return. However, you will be able to deduct certain expenditures from the amount of income you have earned. The valid deductions may include a variety of letting expenses which you have run up during the course of the tax year. Once you have deducted this amount you should then be left with a net rental profit or loss for the relevant tax year.

What kind of expenses are eligible for buy to let tax deductions?

Broadly speaking, the expenses which are eligible for deductions must be incurred:

1)With the purpose of letting the property (and not for personal reasons)
2)Within a seven year period previous to the start of the rental period
3)As revenue rather than capital

If the expenses comply with the above criteria then you will be able to deduct them from the buy to let income on your tax return.

Other expenses which can be claimed against tax, include:

*Utility Bills - such as water rates
*Advertising Fees - incurred when trying to find appropriate tenants
*Letting Fees - such as those incurred by the use of a letting agency
*Insurance - such as buildings insurance, house insurance and contents insurance
*Maintenance Costs - such as gardening and cleaning costs
*Repairs - such as general maintenance repairs. Furnished properties may also be able to claim for a "wear and tear" allowance

When will the buy to let expenditure count as capital and when as revenue?

If you have substantially improved the property to a level which goes above and beyond a simple repair, such as totally fitting out the kitchen, then it will count as capital. However, if the work carried out is fairly minor, such as re-wallpapering the lounge, then it will be viewed as revenue and will therefore be eligible to count as lettings expenditure and can be deducted from the rental income gained.

How does the buy to let tax apply when the property is jointly owned?

If the property is jointly owned, the net profit or loss, that is to say that the amount after the relevant deductions, will be equally divided between the co-owners. This may be significant if one of the co-owners is within a lower tax band or has any available allowances.
About the Author
Elizabeth Grant writes exclusively for The Mortgage Broker specialist mortgage websites. To read more of Elizabeth 's articles on Buy to Let Mortgages please visit the Buy to Let Centre.
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