Different types of property letting have different rules about what expenses are allowable and the way tax relief is given.
The main types are:
Residential property letting (often known as Buy to Let or BTL)
Income is normally taxed on a cash basis i.e income is taxed upon receipt rather than apportioned according to due dates. Allowance may be claimed for expenses that you pay such as maintenance, repairs, utilities, insurance, letting fees, service charges etc, including replacing domestic items if supplied. Allowance cannot be claimed for the initial purchase of furniture and fittings or for improvements to the property. Tax relief is given on loan interest costs by reducing your overall tax liability but is restricted to the 20% tax rate.
Furnished holiday letting (until 5 April 2025)
The letting of property mainly on short term lets which complies with certain specific qualifying rules currently enjoys special tax treatment which allows for all mortgage interest costs to be deducted (effectively giving higher rate relief if applicable) and for capital allowances to be claimed on purchase of furniture and equipment. Such property also qualifies for the special CGT rate of 10% on disposal of property. All these special rules are being abolished from 5 April 2025 and such lettings will fall under the same rules as BTL property, although any unclaimed pool of capital allowances can continue to be claimed.
Commercial property letting
The rules for letting of commercial property are similar to those for residential property except that there is no restriction on loan interest relief and interest paid is allowable in full. Disposals of property are also subject to standard CGT rates as opposed to the higher rates applicable to residential property and there is no requirement to make online returns within 60 days of completion date.If you want more information you can of course contact us at info@odaccountants.co.uk or mail@probusinessuk.com, or phone numbers 020 3137 9887 or 01749 677989.