Tax on property rental

[Geoff]

There seems some confusion over this question of rental duration.

My understanding is that ANY income from letting a property is liable for tax ( both in Portugal & UK as eloquently described above by Richard ) BUT that expenses are only allowable against UK tax IF the property is rented out for more than the minimum periods allowed by HMRC....for 2011/2012 , criteria are , from HMRC website :

•available for commercial letting to the public, as holiday accommodation, for at least 140 days a year (210 days for 2012-13)
•commercially let as holiday accommodation for at least 70 days a year (105 days for 2012-13) - the rent must be charged at market rate and not at cheap rates to friends and family
•a short term letting of no more than 31 days - find more guidance on furnished holiday lettings by using the link below

Hence, if you only rent a property out for less, you are liable for UK tax on the full income but without any allowance for expenditure!

[RichardHenshall]

Ah! Now I see where the confusion has arisen.

The Furnished Holiday Lettings (FHL) is a specific set of rules intended for those for whom their rental income is a bona fide business and there is a minimum amount of activity required to qualify for the benefits of being taxed under the FHL rules.

The minimum 15 weeks of actual rental is to distinguish between those people and the rest of us whose holiday home is partially rented to help pay the bills. We still have to pay tax and are still allowed to make deductions for appropriate expenses but we miss out on other concessions relating to CGT and Inheritance Tax etc.

Residential properties

You or your company must pay tax on the profit you make from renting out the property, after deductions for ‘allowable expenses’.

Allowable expenses are things you need to spend money on in the day-to-day running of the property, like:

letting agents’ fees
legal fees for lets of a year or less, or for renewing a lease for less than 50 years
accountants’ fees
buildings and contents insurance
interest on property loans
maintenance and repairs to the property (but not improvements)
utility bills, like gas, water and electricity
rent, ground rent, service charges
Council Tax
services you pay for, like cleaning or gardening
other direct costs of letting the property, like phone calls, stationery and advertising

Allowable expenses don’t include ‘capital expenditure’ - like buying a property or renovating it beyond repairs to wear and tear.

Furnished residential lettings

For furniture and equipment your provide with a furnished residential letting, you can claim either:

10% of the net rent as a ‘wear and tear allowance’ - net rent is the rent received, less any costs you pay that a tenant would usually pay (eg Council Tax)
renewals allowance - this covers the cost of replacing furniture or equipment, including small items like cutlery

Once you’ve chosen which of these allowances to claim for a property, you can’t switch between them from year to year.

Not included in the above is the adjustment you have to make to everything to allow for your own private use of the property, so some items and/or a proportion of your expenses will be disallowed by HMRC.

[widge]

Looks like the Portuguese Government are about to get tough on tax evaders & illegal holiday lets..................

http://www.algarveresident.com/0-52141/ ... mping-down

[James Faro]

At the end of the day it really is advisable to see an accountant(a good one that is) to advise on how to legally avoid tax liabilities as opposed to evading them. Each year the budget comes out with new tax laws proposed, UK accountancy specialists devise ways and means to legtimately avoid them. I am sure the same situation applies in Portugal.

[EMM]

Also do not get so moral about this, it is the hotel and resort lobby who are behind this, tax payers legal or not they would rather there be no private rentals available. They would like them all shut down.

[e-richard]

Not quite true.

The hotel and resort lobby are just pi$$ed off with private rental owners having a price advantage because they do not pay taxes or have any license.
When property owners pay their fair share of tax, the hotels acknowledge fair competition for holidaymakers who want a different style of holiday.

[EMM]

The comments from the hotel owners associations would seem to contradict the last post.
With thousands of unsold beds on hotels and resorts they are not happy with the competition from private rentals what ever the status.

[bruce]

The comments from the hotel owners associations would seem to contradict the last post.
With thousands of unsold beds on hotels and resorts they are not happy with the competition from private rentals what ever the status.

Did you read this somewhere, if so where ?

[widge]

The comments from the hotel owners associations would seem to contradict the last post.
With thousands of unsold beds on hotels and resorts they are not happy with the competition from private rentals what ever the status.

Which comments do you refer to?

My reading of the situation is similar to e-richard & it's not just the hoteliers who are fed up with the illegal renters the legitimate letting agents and owners are too.

[EMM]

Lets face facts the majority of management companies, rental agencies rely on the unregulated market for a significant % of their turnover. Owners who can exist without this income will stop renting rather than face the hassle. There will be as many unhappy cleaners etc who will lose their jobs as there may be happy competitors.
For every action there is an equal and opposite reaction.
To satisfy the vested interests and bring those who want to into the fold the authorities should have a 6 month period of grace and simple procedure for owners who want to continue renting to register.
I may be a bit short sighted but I cannot remember seeing a single rental plaque in the last 3 years of our travels around most of the popular resorts of the Algarve.
I believe that " Touristic developments have a corporate license which covers individual owners.

[bruce]

So EMM is this an assumption on your part or fact ?

[RichardHenshall]

... To satisfy the vested interests and bring those who want to into the fold the authorities should have a 6 month period of grace and simple procedure for owners who want to continue renting to register.
I may be a bit short sighted but I cannot remember seeing a single rental plaque in the last 3 years of our travels around most of the popular resorts of the Algarve...

...As per Decree-Law nº39/2008 of March 7, it is mandatory to obtain a licence to rent a private property – villa, apartment and lodging establishment - on a temporary basis and be considered an ‘Alojamento Local’ unit...

I suspect that the six-month period of grace would be long expired.

Displaying the AL plaque is optional. Most people wouldn't know what it means. Our agent advised against displaying a plaque for 'security' reasons as it tends to advertise that a property is either empty in the close season or full of tourists who've brought all their new electronic toys on holiday with them (and left their brains at home).

[EMM]

That makes sense, doors left open, laptops, phones etc in plain view.

[widge]

Lets face facts the majority of management companies, rental agencies rely on the unregulated market for a significant % of their turnover. Owners who can exist without this income will stop renting rather than face the hassle. There will be as many unhappy cleaners etc who will lose their jobs as there may be happy competitors.
For every action there is an equal and opposite reaction.
To satisfy the vested interests and bring those who want to into the fold the authorities should have a 6 month period of grace and simple procedure for owners who want to continue renting to register.
I may be a bit short sighted but I cannot remember seeing a single rental plaque in the last 3 years of our travels around most of the popular resorts of the Algarve.
I believe that " Touristic developments have a corporate license which covers individual owners.

As previously stated any "period of grace" expired a long time ago, and many owners who can't survive without the rental income also can't be arsed to get a licence or declare their rental income. With Portugal on it's knees and tourism forming such an important part of it's economy ensuring that the accommodation market is adequately regulated to protect visitors from illegal operators is both responsible and commercially astute. Collecting tax due on rental income is also important to the government and might enable other measures to be relaxed.

Your point about the cleaners is also inaccurate. Supply of accommodation presently far exceeds demand and is extremely price sensitive, that is why the representatives of the tourist industry are so vocal about the lack of enforcement by the authorities. I assume you either don't own a property and/or don't rent it or do and aren't legal - why else would you express these views?

[EMM]

We have a rental property on a " Touristic " development which is covered by a corporate license. There are thousands of such apartments etc in the Algarve. When constructed the apartments already had the necessary fire safety equipment, emergency lighting etc.
But I am a cynic,I do believe that the hotel and resort owners would like to see the back of all of us as you say there is over capacity and it is this part of the industry which has suffered more with higher costs and overheads than the private sector.

Widge I believe that we may have heard you giving vent to this subject last year one night in Bar Talvez, was it you ??