Live-in landlord - take care of your tax liabilities
Released on = April 13, 2007, 9:58 am
Press Release Author = Jimwatson
Industry = Real Estate
Press Release Summary = For many people, the additional income that can be generated by renting out a room to a lodger is a welcome addition to the household finances. It can also help towards meeting any mortgage payments.
Press Release Body = For many people, the additional income that can be generated by renting out a room to a lodger is a welcome addition to the household finances. It can also help towards meeting any mortgage payments.
Recent research suggests that there is a growing trend for housebuyers to actually plan for taking in a lodger when they are looking for a property. In response to this, some mortgage lenders are also offering loan products aimed at live-in landlords.
While the additional income may be welcome, however, landlords must be careful to ensure that they pay the right amount of tax on any earnings that exceed the tax-free threshold - currently set at £4,250. HM Revenue and Customs (HMRC) are presently running an advertising campaign aimed at making live-in landlords aware of the fact that some of the rental income they earn may be taxable.
However, according to one commentator, this advertising campaign is flawed. Tom Entwistle of Landlordzone.co.uk says that, as the campaign is being carried largely in specialist trade papers, they are not going to reach the right people.
\"Those papers are read by all the property professionals: not the types of people who are not going to pay tax,\" he said, adding: \"It\'s the man in the street they need to be targeting. They really need to advertise in the national press, I think.\"
He was also critical of the amount that HMRC allow landlords to earn before being taxed. The Rent a Room allowance was originally introduced in the 1997-98 tax year, a full decade ago. However, this amount has not been changed since then and so has not risen in line with inflation.
\"This is another of the Chancellor\'s stealth taxes,\" says Mr Entwistle. \"That allowance, in effect, if you took inflation into account, should be double what it was ten years ago,\" he claims.
For many people who are operating a small scale in the buy-to-let market - including live-in landlords - the mechanics of keeping accounts and filing tax returns can be confusing. Many newcomers to the market will never previously have had to do anything similar. Some may overlook it or see fit to disregard tax payments altogether.
However, the Inland Revenue takes such transgressions seriously if it uncovers them. Penalties range from fines to imprisonment for the most serious and persistent offenders, so it is worth getting to grips with the regulations or even hiring an accountant to ensure all liabilities are met.
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