Max Accountancy Ltd

What?

- Residential property deductions rules (also known as the ring-fencing rules) and your residential rental property

Who?

- People who earn residential rental property income and deduct their allowable rental expenses

When?

- End of the tax year

Check if the residential property deduction rules apply to you

The residential property deduction rules will apply if you own rental property in the following capacity:

• individual owner
• partner in a partnership
• shareholder in a look-through company
• shareholder in a close company
• trustee of trust.

Property the residential property deduction rules apply to

The residential property deduction rules apply to all your residential land including your overseas residential property.

Property the rules do not apply to

The residential property deduction rules do not apply to:

• your main home (if you have more than one home, this is the home you have the greatest connection with)
• property that comes into the mixed-use asset rules (for example holiday homes)
• property that will be taxed on sale, regardless of when it's sold (you should let us know if this applies in order for it to be excluded from the residential property deduction rules)
• farmland
• property used mainly as business premises
• property owned by a company other than a close company
• employee accommodation
• property owned by Government enterprises.

Choosing a basis to work out residential property deductions

To get started, you should choose a basis to work out your deductions. You can use the portfolio basis, the individual property basis, or both options together if you have more than one property. The key difference between the options is with the:

• portfolio basis you can use the deductions for one property against the income from another property in the portfolio
• individual property basis you cannot use the deductions for one property against the income from another property.

We recommend that you talk to a tax professional about which approach is best for you.

Tailored tax codes

If you have a tailored tax code or certificate of exemption for rental losses (which you used to be able to claim against other income), you may have a tax bill at the end of the income year.

If your tailored tax code relates specifically to rental losses, you'll need to contact us to discuss your situation. To avoid a tax bill you may need to either:

• cancel your current tailored tax code and complete a new Tax code declaration – IR330
• amend your current tailored tax code to a higher rate to cover the reduction already received.