Starting a property business involves more than waking up one morning and starting to collect some rents.
HM Revenue and Customs lodges two main responsibilities with landlords and developers:
- Telling the tax man you have a new stream of income
- Setting the parameters of the first period of trading for the property business
Telling the taxman you have a property business is the first task – and this must be done by the October 5 following the tax year when the business received the first rental income.
Failing to do so can result in fines and other tax penalties.
This goes hand in hand with setting the first period of trading.
A property business officially starts on the first day the tenants starts paying rent – so the business begins on the start date of the first tenancy agreement.
The first trading period runs from the date of the first tenancy agreement starts until the following April 5. All subsequent tax years run from April 6 to the subsequent April 5, until the year when the property business stops trading.
This lets the trading figures tie in with the reporting period for a self-assessment tax return, which also runs from April 6 one year to April 5 the next.
For example, a landlord purchases a buy to let property on February 1, 2012, with the first tenancy agreement starting on August 1, 2012, although the tenant moves in on August 8, 2012.
The start date for the property business is August 1, 2012, and the first trading period runs from August 1, 2012 until April 5, 2013. The subsequent tax year runs from April 6, 2013 to April 5, 2014.
The landlord should notify HMRC that they have a new stream of income by October 5, 2013.
