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So she needs to complete a return for 2012/13 reporting ALL her income (UK salary and US rental earnings). What expenses can be put against income? For example we had the boiler serviced, fire alarms put in and we also pay a property manager. What about property taxes, are these a legitimate expense?
What grounds would she have for appealing the penalty?
Yes, you are correct she is required to declare all on her return. Rents and other receipts from properties outside of the UK are taxed separately as foreign income even though the profits and losses are computed using trading principles just like those of a UK rental business. So she allowed to claim the expenses. The amounts you pay for repairs and management allowed against the income. You can claim relief for tax paid in the US in the foreign pages section of the tax return. As with income from a UK rental business, you normally work out the 'net profit' (or loss) for all your overseas property lettings as if it's a single business. To do this, you:
add together all your rental income
add together all your allowable expenses
take the expenses away from the income
There is no definition in law of ‘reasonable excuse’. Any reasonable excuse will be based on all the facts and circumstances of the specific case but the law does specify two situations that are not reasonable excuse: 1) A shortage of funds and 2) Reliance on another person.