Property Rental Income for Individuals
UK Rents and licences are regarded as UK land and property. Land and property income is all income deriving from such property as if it were a trade. Therefore this is calculated as all income being assessed in the tax year on an ‘accruals’ basis. This means that income is taxed on an ‘arising’ basis in the year of assessment, i.e. income that is due in the year, and not necessary income that is actually paid by the tenant.
For example if a tenant per the tenancy agreement is obliged to pay £495 a month, the taxable income is £5,940 a year, irrespective of the fact the tenant might say pay late for their rent.
Since rental income is assessment like trade, all income from the different rental properties are pooled together, creating one income stream. Hence profits and losses of the same UK properties are amalgamated together to create the net profit or loss. In essence losses from one property is netted off against profits of the other.
If they are losses overall after pooling all the properties together, then these losses can be carried forward against future profits of property income. These losses cannot be set off against other income, e.g. employment income or self employed income. However, if losses arise due to ‘capital allowances’ this may then be relieved against other general income.
Capital allowances is the allowable decrease in value of the assets each year that are used in the properties. For e.g. fridges and ovens. Capital allowance rates will be 20% or 25% a year depending on current capital allowance rates.
Expenses are allowed to be deducted if they are incurred ‘wholly and exclusively’ for the purposes of the property.
The treatment for limited companies broadly follows the same rules as for UK individuals.
Income from Overseas Property for UK Residents and Domicile