Letting a furnished property

I have just started to let out the flat that I previously lived in and have bought new furniture for most of the rooms. I have registered for self assessment with HM Revenue & Customs, so when will I receive a tax return and can I get some tax back if I have made a loss?

1st May 2011

If your letting income has only just commenced, the first tax return you will need to prepare will be the 2011 return, which covers the tax year from 6 April 2010 to 5 April 2011. You will need to report all income received during that period, not just the income from property you received.

The cost of purchasing new furniture for the rental property cannot be deducted against the rental income in the year. When you first start to let out a furnished property, you need to choose between two options for relief with regard to the cost of furnishings.

You cannot claim the cost of the initial furnishings purchased, but one option is to use the ‘replacement’ basis, which means that you can deduct the cost of replacement furniture in the future. If you have just purchased new furniture, this may not be the best option as presumably it should not need replacing for some time.

The alternative is that you can claim an annual ‘wear and tear’ allowance as a deduction from the rental income. The allowance is 10% of the gross rents, after deducting any rates you have paid on the property such as council tax or water rates. If this annual allowance is adopted, the cost of replacing any items of furniture cannot be claimed in the future.

Losses on arising from rental income cannot be offset against other sources of income, so if you have made a loss, it will not generate a tax refund in the year. The loss will be carried forward and offset against future rental income profits.

In order to ensure that you do claim all reliefs available against your rental income, it is advisable that you seek professional guidance.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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