Renting out your property can be a good way to generate an income to help towards your care home costs. This guide is designed to help you understand the tax implications of the process.
Whilst this option enables you to retain the ownership of your property the decision to rent this out does have tax implications. The income generated from the rent is treated as a taxable source of income from the date you first let the property. Property income is calculated as rents received, minus the expenses that can be offset against the rents for tax purposes. HMRC define allowable expenses as the things you need to spend money on in the day-to-day running of the property, for example letting agent’s fees, professional fees, insurance, maintenance and repairs, council tax and utility bills.
If you already submit an annual Tax Return to HMRC under Self Assessment the rental income should be declared in the year of receipt alongside your other sources of income.
If you do not usually submit a Tax Return you will need to register for Self Assessment by the 5 October following the tax year in which you received the rental income.
If you are unable to manage your own tax affairs and have a Lasting Power of Attorney in place then the person acting on your behalf has the responsibility of keeping appropriate records of the rental income and expenditure, ensuring this is reported to HMRC within their reporting deadlines and paying the tax due.
The tax due and payable on rental income should be taken into account and allowed for in any assessment made of available funds to pay for care home costs.
If your property continues to be rented out after you die the responsibility for keeping appropriate records of the rental income and expenditure and ensuring this is reported to HMRC within their reporting deadlines, falls to the Personal Representatives of your Estate. Any tax due becomes a liability of the Estate until such time as the rental income ceases.
The potential for a Capital Gains Tax liability is another consideration if the property is let for more than 36 months after you enter long term care.
For further advice on this and other related issues, please contact Joanne Beale in our Private Client department.
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