Independent Tax Advice – Johnston Smillie

Here is a list of the most common expenses that we come across for Edinburgh rental properties:

• Property management fees
• Factors fees
• Landlord Insurance
• Landlord Registration fee
• Repairs, including statutory repairs
• HMO licences
• Council Tax and utility bills relating to void periods
• Replacing existing furnishings/appliances, but not the initial purchase of the item
• Accountancy fees for the preparation of your tax return (to an extent)

Repairs to the fabric of the building are generally tax deductible.  However, when there is an element of improvement/upgrade any claim might be subject to HMRC challenge if it does not comply with current tax legislation.   

Tax relief is also available on mortgage interest/finance costs, but new legislation has been introduced to restrict the amount of tax relief available on these expenses.  Tax planning advice is therefore key to ensure that any resulting tax liabilities are kept to a minimum.

If you do not have many expenses, it may be beneficial to claim the £1,000 property allowance instead of actual costs against your rental income.

This sort of tax planning will not work if your child is a dependent and under age 18. Any income will be taxable on the parent even if the property is in the child’s name.

There may also be implications for:

• Capital Gains Tax
• Inheritance Tax
• Land and Buildings Transaction Tax (LBTT) for Scottish properties or Stamp Duty Land Tax (SDLT) for acquisitions elsewhere in the UK.  The child may have to pay the ADS (or UK equivalent) when they are old enough to buy their own property
• It may restrict the child’s right to help-to-buy ISAs and similar products

The work involved in unravelling this sort of arrangement can be expensive.