Rental Income below £10,000

Rental Income below £10,000

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I have 2 people who have rental income which is below £10,000 per year.  I have checked in books and HMRC website and believe that a tax return does not have to be completed.  Assuming that they have no other income, is this correct? If they are employed and paying BR PAYE and NI, does this limit still apply? And if not, I assume they only have to start declaring there income from when they go over the limit.

When they sell their rental property, their rental income does not affect any CGT taxes so again as far as I can see, there is no requirement to declare rental income.  Is this correct or am I missing some BIG vital point here??  I'm currently self employed and as much reading as I do, I just need someone to confirm this or not as the case may be.  I'm sure when I was working in practice, I did a lot of tax returns, where property income was below the £10,000 threshold and I'm wondering why.

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By bigdave1971
05th Oct 2012 21:42

Rental income

Have a look at this thread, the last few posters mention that it still needs to be declared through PAYE (if possible) but the levels involved mean that it would be inefficient for a new self assessment record to be set up.

https://www.accountingweb.co.uk/anyanswers/reporting-rental-income-hmrc

 

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By cparker87
06th Oct 2012 00:48

The form...
Suggested above seems a mythical beast to me. It does not make sense to collect tax on this income via a PAYE code due t the variables involved.

As t the OP if a couple (assumed) had rental income of net profit 10k (shared equally) and then were each employed at say £10k each on BR codes they would effectively being overtaxed, the reason of course being they are not receiving full entitlement to their Personal Allowance (£8105 2012/13).

The issues are
(1) why avoid a ITSA Return which offers greater accuracy and clarity.
(2) why would the individuals be taxed BR if they went down the normal p45/p46 route?

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By FreddieZonko
06th Oct 2012 09:10

HMRC website guidance

HMRC site states a Tax Return should be completed if:

£10,000 or more income from property before deducting allowable expenses: or£2,500 or more income from property after deducting allowable expense.

BWs

 

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By petersaxton
06th Oct 2012 09:23

PAs and self assessment

"(1) why avoid a ITSA Return which offers greater accuracy and clarity."

I agree. I think PAs should be increased to take more people out of tax but then above that people who have any income other than taxed via PAYE on salary should have to complete a self assessment return.

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By ACDWebb
06th Oct 2012 09:56

HMRC "Do you need to complete a tax return?"

is HERE, but could possibly be misconstrued and leave one open to failure to notify penalties, etc.

If the two you are talking about only receive rental income and nothing else, then on HMRC's notes they do not need to complete a SA return, but I think if they were a client I should want to put the details to HMRC and get them to confirm that they do not want a return completed rather than work on the basis of that note and not bother only for a ton of bricks to land on the client later on.

That is only HMRC's note. It also says that you have to complete a tax return if you are a company director, but there is nothing in legislation to back that up.

If the two you are talking about are on PAYE but taxed BR again I would prefer to a proper code issued.

If they were on a basic PA code of 810L and using all their allowances at the employment then gross rental income under £10k and net under £2.5k would still give rise to a liability of up to £500. Again I do not think that I would be happy to just ignore the income until one of the limits is breached. What then happens when HMRC come to you years down the line and say "why did you not report this income". Can you rely on this HMRC page to back up failing to advise of a liability of up to £500 for years. Presumably they will say "show me where it says that in the legislation", and I would suggest you will be hard pushed to do so. Then you would be arguing the toss about the level of penalties.

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By Trevor Scott
06th Oct 2012 19:16

People seem to be getting confused....

...and it is mainly down to HMRC.

Irrespective of what the current HMRC PR vomit is, the "snakes and ladders" wording that starts from section 7 of the Taxes Management Act 1970 amounts to the fact that you have a legal duty to correctly declare your taxable income and also pay those taxes.

If anyone knows of law, not a HMRC hairbrained interpretation of a law, that states you can avoid declaring and paying tax on taxable income then please tell us all about it.

 

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By Steve Kesby
06th Oct 2012 11:24

You're best off ignoring HMRC's misguidance

The HMRC guidance is simply referring to when THEY CONSIDER that a person is likely to need to complete a Tax Return.  It certainly doesn't deal with when you don't have to complete one.

Just because you don't hit the thresholds they refer to, doesn't mean that you don't need to complete a Tax Return.

If you are liable to tax (beyond that collected at source and under PAYE) and haven't received a notice to complete a Tax Return, then you have an obligation to notify chargeability by 5 October following the end of the tax year.  That's what the law says.  HMRC then decide whether or not they actually want you to complete a Tax Return.

If HMRC issue you with a notice to deliver a Tax Return, then you have to complete one.  That's what the law says.

Then next year comes along, and if HMRC don't issue you with a notice to complete a Tax Return and you have a tax liability (beyond that collected at source), you have to again notify that you're chargeable to tax by 5 October.

If you are chargeable to tax, you have to notify that chargeability, and sooner or later will issue you with the Tax Returns to allow you to self-assess and pay the tax.

If you're liable to tax, one way of notifying chargeability, and put the matter to rest, is simply to voluntarily complete a Tax Return.

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By A mum and an accountant
07th Oct 2012 00:08

Thanks for all your replies!
I do know better than to rely on HMRC website and logically it does makes sense to declare all your income on a tax return Whether there's a profit or not. All your replies have been very useful.

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