Renting your property can provide a good source of income, but it is important to remember that you must contact HMRC if you have taxable profits from your rental property.
Here are some key points you should be aware of:
You must pay tax on any profit you make from renting out property. How much you pay depends on:
- how much profit you make
- your personal circumstances
You must contact HMRC if you have taxable profits from your property you rent.
If you’ve not told us about your property rental previously, you need to do so by 5 October following the tax year you had taxable rental profits.
Whether you need to fill in a tax return will depend on the total rents you get and the profit you make. It will also depend on any other income you’ve had or may get, for example, from employment or pensions.
If HMRC asks you to send in a tax return you must give details of your rental income and expenses for the tax year even if you’ve no tax to pay.
If you’ve more than one UK property, you need to add together all your rental receipts and expenses and treat them as one business when working out your profit or loss.
Work out your rental income
Your rental income is mainly the rent you get but also covers payments you get from your tenant for:
- the use of furniture
for additional services you give such as:
- cleaning of communal areas
- hot water
- repairs to the property
Different rules apply if your property business includes profits from overseas properties or commercial letting of furnished holiday accommodation in the UK or in the European Economic Area (EEA). The profits and losses for these must be worked out separately from other rental properties.
From 6 April 2017, you can get up to £1,000 a year in tax-free allowances for property income.
When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income.
Other common types of expenses you can deduct if you pay for them yourself are:
- general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
- water rates, council tax, gas and electricity
- insurance, such as landlords’ policies for buildings, contents and public liability
- costs of services, including the wages of gardeners and cleaners
- letting agent fees and management fees
- legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- accountant’s fees
- rents (if you’re sub-letting), ground rents and service charges
- direct costs such as phone calls, stationery and advertising for new tenants
- vehicle running costs (only the proportion used for your rental business) including mileage rate deductions for business motoring costs
Expenses you can’t claim a deduction for include:
- the full amount of your mortgage payment – only the interest element of your mortgage payment can be offset against your income
- private telephone calls – you can only claim for the cost of calls relating to your property rental business
- clothing – for example, if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm – no identifiable part is for your property rental business
- personal expenses – you can’t claim for any expense that was not incurred solely for your property rental business
To find out more about how we can help you manage your property call 01749 681356