Tax Digital for landlords…….

Government Introduction to Making Tax Digital

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.

Every individual and business now has access to their own personalised digital tax account and these are being regularly expanded and improved. HMRC’s is changing the tax system to make it more effective, more efficient and easier for customers to comply.

However a number of concerns about the pace and scale of change have been raised. As a result the government has announced that the roll out for Making Tax Digital for Business has been amended to ensure businesses have plenty of time to adapt to the changes.

Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

The government aim is to support businesses to get their tax right and reducing the amount of tax lost through avoidable error.

Government has outlined a timetable which illustrates how they set out to achieve this by 2020 and it is envisioned that everyone will be affected, resulting in the death of the tax return as we know it.
At the moment, landlords keep their accounting records in a variety of ways, from paper records, spreadsheets or accounting software. These records are then used to prepare a tax return for the property business at a later date. Government is now proposing, with Making Tax Digital, unincorporated property businesses will be required to:

1-Maintain their records digitally, through software or apps

2-Report summary information to HMRC quarterly through their ‘digital tax accounts’

3-Make an end of year declaration through their digital tax accounts

What is a digital tax account?

Digital tax accounts are like online bank accounts, with secure areas where a businesses can see all of their tax details in one place and interact with HMRC digitally.

What are digital records?

A digital record is a record of data for each transaction of the business. The proposed minimum required data will be:

• Date rentals due and payment received date

• Rental value

• Invoice date and value for expenses

• expense category

• deducted amount/percentage for expenses
Digital records can be maintained using software which will be available from third party software providers. HMRC have confirmed there will be some products which are free of charge.

Multiple Properties

Where multiple properties are held within a property business, income and expenditure only has to be recorded for the property business as a whole and does not have to be allocated to individual properties. There will however, be a requirement to maintain details of each property’s address in the digital records.
Storing digital records

The software will either store the records locally, for example on a computer, or in the cloud. HMRC expect that the software will, after an initial phase of manually assigning transactions to expense categories, start to recognise regular items and automatically assign them.
Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts. In the revised proposals the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally. HMRC are aware that a lot of property businesses use spreadsheets to currently record their data and have now confirmed that spreadsheets will be one of the options for maintaining digital records. But users will need to ensure that the spreadsheet is able to meet all the necessary requirements of making tax digital, not just keeping a record of each transaction but also providing quarterly summary updates and end of year information.
Businesses will need to use software appropriate to their business requirements. For example, a property partnership will need software that can record the partners’ details and profit shares.

How will the quarterly return work?

You will be expected to compile all the relevant data into your chosen software each quarter, and once this is done you will then be expected to feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. It is envisaged that the analysis of the data will be similar to the existing categories in the self assessment tax return. Smaller property businesses will be able to prepare an update that contains only three lines of data – income, expenses and profit.

If you have further questions regarding tax digital please contact Pelin Martin on

+0208 994 7327

pm@bluecrystallondon.co.uk

Lets talk about your property

Landlords: Interest Relief system is changing…..

The taxing system for interest relief on investment properties is changing, government will restrict the amount of Income Tax relief landlords can get on residential property finance costs (such as mortgage interest) to the basic rate of tax. This will ensure that landlords with higher incomes no longer receive the most generous tax treatment. To give landlords time to adjust the government will introduce this change gradually from April 2017 over 4 years.

General description of the measure

This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

If you have any questions regarding changes to interest relief tax for landlords please contact Pelin Martin on

+0208 994 7327

pm@bluecrystallondon.co.uk

Lets talk about your property

Do you know the rules of becoming a landlord?

property management Chiswick

You may have deliberately made the decision to invest in buy-to-let property or you’re one of the ‘accidental landlords’ and you’ve found yourself in a position where, for whatever reason, you need to rent out a home, it’s crucial that you understand your responsibilities before you welcome your first tenants.
There are a lot of rules in place that apply to landlords, and it’s easy to feel overwhelmed at first. However, as long as you do your research, you shouldn’t find it a problem to meet your obligations and remain on the right side of the law.

To get you started, here are some of the responsibilities you’ll have when you become a landlord.

Ensuring your property is safe

One of your most fundamental obligations is to ensure your rental properties are safe for people to live in. This includes making sure all of your electrical and gas equipment is safely installed, regularly checked and properly maintained. You also have to provide a smoke alarm on each floor of your property and, in rooms with useable woodburners or fireplaces, a carbon monoxide alarm. In addition, any furnishings you provide have to be fire safe and there must always be access to escape routes in the event of a fire.
If an emergency arises which makes your property unsafe or insecure while tenants are living in it, you must resolve the problem and pay for any repairs. Whether your doors or windows are damaged, there’s a problem with your cooking equipment or plumbing, or another issue arises that could pose a risk to your tenants’ health and safety, you’ve a responsibility to act.

There are specialist insurances available to cover the cost of any such repairs.

Providing an energy performance certificate

Before you market your property to prospective tenants, you’re required to provide an energy performance certificate (EPC). If you’re based in Scotland, you must also display this document in the property (for example next to the boiler or in the meter cupboard). EPCs contain information on the typical energy costs and energy use in a property and they give recommendations on how energy consumption can be reduced. The documents, which are valid for 10 years, give properties an efficiency rating from A (the most efficient) down to G. To get an EPC, you’ll need to contact an accredited assessor.

Protecting your tenants’ deposits

When you get a deposit from your tenants, you must place it in a tenancy deposit protection (TDP) scheme. This rule applies to all assured shorthold tenancies that started after 6 April 2007. In England and Wales, the TDP schemes are:
● Deposit Protection Service
● MyDeposits
● Tenancy Deposit Scheme

In Scotland, they are:

● Letting Protection Service Scotland
● Safedeposits Scotland
● My|deposits Scotland

Backed by the Government, these schemes ensure tenants get their deposits returned to them as long as they meet the terms of their tenancy agreements, pay their rent and don’t damage properties. You, or your letting agent, must put the money your tenant provides as a deposit into one of these schemes within 30 days of receiving it. At the end of a tenancy, you have to pay the money back within 10 days of agreeing on the sum to be returned.

These rules don’t apply to holding deposits provided by future tenants to hold a property before an official agreement is made. They only take effect once contracts have been signed.

Checking tenants’ right to rent

If you’re renting out a property in England, you have an obligation to check tenants’ right to rent. This involves determining whether people are legally allowed to rent residential property in England. To abide by the law, you must make suitable checks on all tenants and occupiers aged 18 or over, even if they aren’t named on your tenancy agreement. You have to assess each new tenant, not just those you suspect may not be British citizens.

You’re required to check original documents that allow tenants to live in the UK, making sure this paperwork is genuine and doesn’t show signs of having been changed. You must also make copies of the documents and note the date you conducted the checks. If you don’t follow these rules and you accept a tenant who doesn’t have permission to rent property in England, you risk being fined up to £3,000.

Understanding your rights of entry

As a landlord, you can’t simply walk into your rental properties as and when you wish. There are strict rules governing access. However, you can enter these properties if certain conditions are met. For example, you have a right of reasonable access if you need to conduct repairs. What ‘reasonable access’ means will depend on the nature of the repairs. If there’s an emergency, you may be entitled to enter immediately to carry out work.

You also have a right of entry to inspect the state of repair of your property. To comply with the law, you have to give your tenants a minimum of 24 hours’ notice before you do this. Most tenancy agreements also stipulate that visits must be made at ‘reasonable’ times so that tenants can be in if they wish to be.
If you have an agreement with your tenant that you’ll provide a room-cleaning service, you don’t need permission before entering the property.

This isn’t an exhaustive list of your responsibilities as a landlord, but it does cover some of the basics and should give you a better idea of what to expect.

If you have any further questions regarding your responsibilities as a landlord please contact Pelin Martin on

+0208 994 7327

pm@bluecrystallondon.co.uk

Lets talk about your property

10 tips for buy-to-let success……

1 Try to buy something that is not very old and tired

This will mean less maintenance down the line. As lovely as a period two-bedroom house sounds, you’re not going to be living in it. Do not get carried away about any purchase as a home. It is a business deal.

2 Buy the type of property that is most “lettable”.

Two-bedroom houses and flats are ever popular and appeal to the widest range of potential tenants, especially those who are finding it tough to get on to the property ladder. Avoid large family homes, which appeal to fewer potential tenants.

3 Don’t restrict yourself to your own immediate area

Don’t restrict yourself to your own immediate area but research others Remember, you are not purchasing to sell again in a year. You will probably own the property for the rest of your life, so concentrate on getting the best rate of return on your money.

4 Make sure the area has a healthy market for tenants.

Be shrewd about the exact location of the property within your chosen town or city. Convenience is a useful factor. Being within walking distance of shops, railway stations, the town centre and so on will ensure that your property is high on the list of desirable places to live for tenants.

5 Try to avoid run-down areas.

Quite simply, this will have a direct relationship with the type of tenant you will attract – and poor-quality tenants will cost you money.

6 Do not give the game away

When you are viewing a property as a possible purchase, do not give the game away to the sales agent or vendor about how much you like the place. It will work against you at the offer stage.

Instead, remain polite at all times but do not be afraid to ask questions if you spot any snags. A bit of damp or condensation? Ask if there has been a previous problem. The same with wiring, wall cracks or anything that doesn’t appear quite right. Present the question nicely and without looking as if you are picking holes. Even though you may be perfectly aware there is no major damage or problem, you will have the vendor thinking about these points when it comes to your offer.

Remember, they need to sell and they want your money. A lower offer may get accepted if you have given no indication of how much you want the property.

7 When making an offer on a property, be patient – but ruthless.

As an investment buyer, you are not in a chain and can move at speed. This has value to the seller, so be prepared to walk away if you are not getting the deal you are after. There will always be a similar opportunity and a more willing vendor to do a deal.

8 Using a mortgage makes your money work harder.

Whether to go interest-only or repayment is a personal decision, but a rental income high enough to cover a repayment mortgage is a good indicator that you are getting things right. Take out a fixed rate if you are uncomfortable about the chance of interest rates rising, although you will pay a premium.

9 Most investors use a management agency to manage their property.

Now, just about every high street estate agent operates a letting service, and there are also many independents competing for landlords’ business. Shop around and drive your costs down by negotiating.

You should be able get a property management fee of between 8-5pc – or even lower if you have several properties to offer

If you want to let and manage your property yourself then go for it – but do it right.

10 Watch out for add-ons that some management agencies try to get away with.

For example, let’s say one of your properties needs maintenance. Some agencies will try to charge an “admin fee” to organise it for you. Do not accept this. You are already paying a monthly fee and this should cover the organisation of maintenance and repairs.

Also check the price of services such as carrying out an inventory and handling a change of tenant. Again, some agencies are a little too creative when it comes to invoicing. Agree on a rate at the start for all administration costs and make sure the agency sticks to it.

When you get your monthly statement from your managing agent, any maintenance work that has been carried out should be listed. Ensure that you receive a copy of the invoice from the trader or company that carried out the work so you can check that the charges were fair. If you know a cheaper plumber or electrician, for example, ask your agent to use them for future work. They can and should do so.

Please contact Pelin Martin for any property management enquiries on 0208 994 7327 or on pm@bluecrystallondon.co.uk