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Question
I live in Northern Ireland and rent out a residential property located in Northern Ireland. I have never included this income on an income tax return. How much tax will I have to pay and how do I take my tax affairs up to date?
Answer.
If you are in receipt of rental income, you would be required to complete and submit an income tax return to HM Revenue & Customs (“HMRC”). You would be taxed on the net rental income received from the property, i.e. rent less expenses. Expenses include, loan interest, rates, insurance, and repairs. In addition to this you would also receive a deduction for wear and tear allowance. This equals 10% of the rent received less rates paid.
The amount of tax you would pay on your net rental income would depend on your other sources of income. For the 2011/12 tax year, if your total sources of income (including your net rental income) less your personal allowance of £7,475 are less than £35,000, you would pay tax at 20%; if between £35,001 - £150,000 you would pay tax at 40% and if greater than £150,001 you would pay tax at 50%.
In order to take your tax affairs up to date, you would need to make a voluntary disclosure to HMRC for each year that you have received rental income. It would be important that you could demonstrate how the property was funded, details of the rental income received and proof of the expenses incurred for each respective tax year.
A penalty and interest would be charged on the unpaid income tax. The level of penalty could range from 0% to 100%. However, for a voluntary disclosure, it is likely that the penalty could range from 0% to 30%. HMRC have issued letters to individuals recently who they believe may be in receipt of rental income which has not been taxed. If you do not take action now and HMRC enquire into your tax affairs, the penalty could be substantially higher.
The advice in this column is specific to the facts surrounding the questions posed. Neither FPM Accountants LLP nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
Email s.mccreesh@fpmca.com |