Crunching The Numbers! The Property Income Pages

Sarah Bradford explains what information needs to be returned on the property income pages of the self-assessment tax return.

The self-assessment tax return for 2017/18 must be filed online by midnight on 31 January 2019. If you received income from property in 2017/18, you may need to tell HMRC about this by completing the property pages of the return; however, not all property income needs to be declared.

A tax-free property income allowance was introduced from 6 April 2017. The allowance is set at £1,000 a year. 

The introduction of the allowance means that anyone who has property income in 2017/18 of less than £1,000 does not pay tax on that income and does not need to report it to HMRC. 

The rent-a-room scheme makes it possible to earn tax-free income by letting out a furnished room in your own home. Provided the conditions are met, income up to the rent-a-room limit of £7,500 is tax-free. Where the income is shared by more than one person, the tax-free limit is halved to £3,750.

If you receive rent-a-room income, whether you need to tell HMRC about this on your tax return depends on whether you have to complete a tax return for other reasons. If you do not, and your income from letting a room in your home is less than the rent-a-room limit, you do not need to tell HMRC about it or complete a tax return. However, if you need to complete a tax return anyway (for example, if you are self-employed), you must declare your rent-a-room income and claim rent-a-room relief on the return.

If the income from letting a room in your home exceeds the rent-a-room limit, you must complete a tax return and tell HMRC about the income.

Income from UK property which is not exempt from reporting requirements, as outlined above, needs to be declared to HMRC on the UK property income pages of the self-assessment tax return. 

The first page asks whether the taxpayer wishes to claim rent-a-room relief and how many properties are let out.

It also asks:

If the taxpayer has furnished holiday lettings, information should be provided in the relevant pages. There are separate pages for UK furnished holiday lettings and EEA furnished holiday lettings.

As regards the UK furnished letting pages, the details to provide are income from UK furnished holiday lettings, the property income allowance (where this is claimed, or details of the deductible expenses by category where it is not), whether traditional accounting was used instead of the cash basis, details of private use adjustments and capital allowances and balancing allowances, as relevant, and any losses brought forward which are to be set against the 2017/18 profit. If a loss is available to be carried forward, this is entered in the box on the second UK furnished holiday lettings page. If the taxpayer wishes to make a ‘period of grace’ election, that should also be done on this page.

Where the taxpayer has EEA furnished holiday lettings, the same information is required as in respect of UK furnished holiday lettings, but this is entered on the EEA furnished holiday lettings pages. 

Property income other than that from furnished holiday lettings is entered on the ‘other property income’ pages.

Property income details are entered on the first page. Total income from property excluding any UK furnished holiday lettings should be entered in the box. This will include income from a tenancy, leasing or licensing agreements over land or property, income from furnished, unfurnished, commercial or domestic accommodation (including any amounts for the use of furniture and income from land). Other taxable receipts should be included, such as ground rents, wayleaves, grants, income from sporting rights, etc.

The property allowance of £1,000 can be deducted from income to arrive at profit instead of deducting actual expenses. This will be beneficial if actual expenses are less than £1,000. Where the property allowance is claimed, this should be entered in the second box.

From 6 April 2017, the cash basis is the default basis of preparation for landlords where the conditions are met, unless the landlord elects to use the traditional accruals basis instead. The first page of the UK property pages asks if traditional accounting was used to calculate profits.

Non-UK landlords should enter any UK tax deducted from rents and other income in the relevant box.

Where a premium is paid for the grant of a lease, the chargeable premiums worksheet can be used to calculate the amount to be entered on the tax return. The online return contains a link to the worksheet. 

A reverse premium is an inducement received to take an interest in a property for letting. Where such a premium is received, this should be entered in the relevant box.

The second of the UK property pages is for expenses. Separate boxes are provided for:

The relevant figures should be entered in each box.

Care should be taken to enter the correct figure for loan interest and other financial costs. From 2017/18 onwards, the way in which relief for loan interest is given is gradually changing from relief by deduction to relief as a basic rate tax deduction. The 2017/18 tax year is the first transitional year. For that year, relief for 75% of loan interest and finance costs is given by deduction, with relief for the remaining 25% as a basic rate tax deduction. When entering expenses on the 2017/18 tax return, only 75% of the loan interest and other finance costs should be entered in the box on page two of the UK property pages; the remaining 25% is entered later. 

Any adjustment for private use is made on the third page – this may arise, for example, if the property is let for nine months and lived in by the landlord for three months, but the annual cost of insuring the property has been entered as an expense. The proportion relating to the period during which the property was used privately (in this case 3/12ths) must be entered as a private use adjustment. 

If traditional accounting is used and capital allowances or balancing charges are in point, they should be entered in the relevant boxes.

Where the let is a residential let, any relief which is being claimed for the replacement of domestic items is entered in the final box on page 3.

Losses from a property income business can only be utilised by carrying forward and being set off against future profits from that property income business. Where there are brought forward losses, and are set against the 2017/18 profit, these should be entered in the box on page 4. In very limited cases, a claim can be made to set a loss against total income. This is made on page 4.

The final box on page 4 is for the remaining 25% of loan interest and finance costs, for which relief is given as a basic rate tax reduction. 

Any further information to supplement the information provided on the return should be entered in the box provided.

The final UK property page is a summary page for UK/EEA property.

Any income from foreign property is entered in the foreign income pages of the return.

Make sure that you have all the information to complete the property pages of your 2017/18 tax return and allow enough time to meet the deadline. The on-screen help boxes are useful if you are unsure what to enter in a particular box.