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Income Tax on Rented Properties

It’s the new Financial Year and lots of people are thinking about their tax returns for the recently completed financial year. We habitually receive a lot of enquiries at this time of year about lowering income tax (ICT) on rental income from residential properties. If you and your Partner / Spouse rent a property, then of course you should be declaring the income from those properties, and almost certainly paying tax on the income. However, if one of you is a higher rate tax payer, then there could be a way of you reducing how much ICT you pay. You can make a declaration to HM Revenue & Customs (HMRC) that the income is proportionally more for the lower rate tax payer. Say, for example, that you received £500 per month rent.  You could declare that 90% of the rental income was for the lower rate tax payer, and the remaining 10% was for the higher rate tax payer. That should mean that only £50 of the rent was taxed at the higher rate, and £450 taxed at the lower rate. Over the course of the year it’s a saving that could add up. You should speak to your accountant about this, to make sure it works for your individual circumstances.  But if you want to do this, you can accomplish it by creating a Declaration of Trust – a very basic document detailing who gets the income from the property. Your accountant, or yourselves, can then notify HMRC of the Trust and thereafter pay the lower tax. We, of course, are not accountants.  But if you need help with the Declaration of Trust please get in touch.  They are pretty simple, quick to draw up, and not very expensive. If you would like to know more about this, then please contact a member of our Private Client team  on 01623 451111, or email mailto: rhoward@fidler.co.uk

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