Tax is payable only upon the net surplus of the rental income. Most expenses incurred in managing the property are available for tax relief and tax on rental income can usually be reduced or even eliminated altogether by taking into account a number of contributing factors, including:

The initial cost of furniture, fittings and fixtures is not an allowable expense but is covered by a 10% annual "wear & tear" allowance. However, the actual cost of subsequent replacements may be claimed. Please note that improvements are not generally classified as an allowable expense for tax purposes. There is a comprehensive list of other expenses for which exemptions are available and we would recommend seeking advice from a qualified accountant on all aspects of taxation.

Overseas Residents
In most cases UK regulations treat overseas landlords favourably. It is vital, however, that all overseas investors take appropriate professional advice.

Income Tax This applies to all rental income in the UK. A variety of allowable expenses including financing costs, maintenance and repairs, and certain professional fees may make it possible to eliminate a tax liability altogether, or at the very least reduce it considerably. Additionally, depending upon the circumstances, it may be possible for certain overseas landlords to be entitled to UK personal tax allowances which can greatly reduce or indeed eliminate UK income tax.

Inheritance Tax This applies to all assets in the UK above certain lower limits, regardless of where the owner resides. With suitable advance planning, this is a tax that under certain circumstances may be avoided

Capital Gains Tax Overseas residents are usually exempt from tax on capital gains arising in the UK, but it may be possible to lose this exemption. Property owners considering frequent or extended visits, or those considering becoming a resident of the UK, should take appropriate advice.

It may be possible for landlords to compute their own tax liability under the new "self-assessment scheme" and, after obtaining prior agreement from the Inland Revenue, to receive the rental income in full.