At the date of writing there are 28 days to go before the 2011-12 tax return has to be filed, and any balancing payments and payments on account have to be paid.
It would seem appropriate to outline some important points about Self Assessment (SA), with particular reference to the property landlord, albeit a number of the points are relevant to other taxpayers.
Requirement to be part of Self Assessment
If an individual only has income from non-PAYE sources, such as income from renting properties then a tax return will need to be completed if all of the following apply:
• you have income to declare, for example income from savings, trusts or abroad, rental income from land or property
• your total income exceeds your total allowances and reliefs
• you have tax to pay on this income
The completion of a tax return will be required if a taxpayer wishes to claim any loss reliefs.
Taxpayers are under a legal duty to keep sufficient records to back up their SA submission. HMRC take this matter very seriously and are continuing with (redesigned) business record checks. Their selection criteria are based on risk assessment; cash based businesses being more likely to be selected for business record checks.
For income tax purposes, HMRC advise landlords to keep details of:
•the dates when you let out your property
•all rent you get
•any income from services you give to tenants (e.g. if you charge for maintenance or repairs)
•rent books, receipts, invoices and bank statements
•allowable expenses you pay to run your property (e.g. services you pay for such as cleaning or gardening)
Taxpayers must retain records for a certain length of time, for example, for a 2011-12 return filed on or before 31 January 2013, records must be kept until 31 January 2014.
Tax is payable on the net rental 'profits' of the property, effectively rental income due minus any running costs that are incurred in connection with the letting of the property.
A separate article of what can be claimed will be uploaded separately, more information can be found at http://www.proactiveresolutions.com/?s=property – remember that tax allowable costs must normally be "wholly and exclusively" for the purpose of the rental business.
Capital gains tax
Property gains are calculated by deducting the capital costs from the value of the disposal, the disposal is normally by sale or transfer; net gains will be after further deduction of capital losses and the annual exemption of £10,600 for 2011-12.
Tax rates 2011-12
Income tax is payable at 20% on taxable rental profits up to £35,000, 40% is payable on the excess and an additional 50% on profits over £150,000.
Net capital gains will be taxed according to the 'income tax' status of the taxpayer, 18% for 'basic rate' gains, and up to 28% if the taxpayer is a 'higher rate payer', a higher rate taxpayer is one who has a gross income in excess of £42,475.
Capital gains tax reliefs
These include capital losses and the annual exemption, are the principal private relief (PPR); letting relief (gains up to £40,000 tax free); transfers to a trust, non-residence and death of the individual.
It is vital that taxpayers do not miss payment deadlines, HMRC are more flexible in the methods of payment and encourage internet and telephone payments, if this method is adopted it is important that the correct bank accounts and number formats are adopted. HMRC have updated their own website to include a lookup tool that sets out which bank account to use and the required format to use for the reference numbers.
Do not impersonate an ostrich and contact HMRC at the earliest arrangement and negotiate a time to pay. Payment plans are not guaranteed, and will be dependent on a number of factors, such as level of tax owed, affordability (evidence may be required), previous tax history. HMRC have certainly been more assertive in collecting tax and are under increasing political pressure to be more so. HMRC more readily move to legal action for uncollected debts, having the use of (currently) 11 private debt collection agencies.