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04/03/2010 |
Careful Planning Benefits Landlords |
“We are seeing an all time high for rental properties and while this is an excellent way of earning income from your property, we would always advise that people make sure they have a clear tenancy agreement in place to protect both parties,” advises Richard Girdwood of Letting Agents George F. White. “Once tenants are in place you should also make sure you are fully aware of the tax implications on any rent you receive and costs you incur.” Here he offers advice on how to set up an agreement and manage your income.
Prior to renting your property you need to make sure that both landlord and tenant agree and sign a ‘watertight’ Assured Shorthold Tenancy Agreement. Not only do ASTs provide a detailed, written record of the agreement between landlord and tenant they also clarify both their obligations. This stretches from who pays the rent to detailed aspects on things like who pays for removing vermin, pests and insects (a tenants’ responsibility) through to maintenance of sanitation (a landlords’ responsibility).
The AST also clearly lays out where the deposit is held, the correct method of terminating the tenancy and the notice period required. It also sets out a tenant’s obligations prior to termination of their lease . For example arranging to clean the windows and oven within the last two weeks of the tenancy and allowing viewings to be carried out within the last month of the tenancy.
Whether you are a tenant or a landlord the importance of this detailed document is of the utmost importance. When prepared with a detailed inventory, it is invaluable especially if in the worst case scenario there is an end of tenancy dispute regarding the condition of the property.
However, for now, let us assume that both landlord and tenant are happy with their agreement and that the landlord is receiving regular rent on the property. The taxable profit on a residential letting can have a significant impact on your tax bill at the end of the financial year. Allowable expenses can be offset against tax to reduce your liability but many people are unaware of what can and cannot be deducted and they can end up paying an excessive tax bill. Key examples of allowable expenses include letting agent fees, maintenance and repairs (not improvements) to the property, rent and building insurance. On the flip side, items which are non-allowable include capital costs i.e. furniture along with any personal expenses.
An extensive list has been produced by the Inland Revenue however the key element is that the cost must be incurred directly to the letting of the property or the continued rental and maintenance of the property. With regard to the allowance granted, normally this is capped at 50% of the cost at purchase however with sustainability at the forefront of many people’s minds there is an allowance to claim 100% on environmentally friendly features.
The issue of tax is one that is never far from the headlines and if it is possible to off-set an amount of your liability than this can only be a bonus for landlords.
Anyone wishing to find out more about letting a property can contact Richard Girdwood at the Alnwick office of George F. White on Tel. 01665 603 581.
George F. White has offices in Alnwick and Tyne Valley in Northumberland, Wolsingham and Barnard Castle in County Durham, Bedale in North Yorkshire, Shiptonthorpe near York and Park Lane in London
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