Rental Income

You may be taxed on your net income from rentals (i.e your gross rentals less expenses) depending on your other income and personal circumstances.

If you rent out a shared or jointly owned property, you will be subject to tax on your share.

If your gross income from rentals (i.e before deduction of expenses) is £1000 or less you do not need to declare this income or pay any tax on it.

You can earn up to £7,500 tax free if you rent out furnished accommodation in your own home (see gov.uk/rent-room-in-your-home).

You can claim expenses, typically including the following:

• Property maintenance and repairs, including cleaning and gardening.

• Utilities, such as water rates, council tax, gas and electricity, where they are incurred by you as the landlord, rather than the tenant;

• Landlord insurances;

• Professional fees such as letting agent fees, accountancy fees and some legal fees;

• Phone costs, stationery & advertising

• A proportion of vehicle running costs which relate to your rental business and any fuel costs for relevant mileage.

You cannot claim:

• Property improvements, such as an extension. You should still keep records of this information as it can reduce your liability to capital gains tax if and when you sell the property.

• Personal expenses such as private use of a mobile phone or vehicle.

No, the capital element of your mortgage repayment is not an allowable expense.

If you rent out residential property, the interest element of your mortgage repayments and any other finance costs are no longer an allowable expense as from 6 April 2020. Instead you receive a tax credit of up to 20% of your mortgage interest payments.

If you rent out commercial property or furnished holiday lettings then mortgage interest and other finance costs are an allowable expense.

You will pay tax at 20% or 40% depending on your total taxable income for the tax year.

Notify HMRC of your rental income on your self assessment tax return which is due by 31st January following the end of the tax year. Any tax due is also payable by this date.

Furnished holiday lettings, letting out a UK property when you live abroad or renting out an overseas property are all subject to slightly different taxation rules.

When a property is owned by a limited company, rental profits will be subject to corporation tax, and tax returns and payments will need to be made in line with the corporation tax rules.

Expenses can be claimed in the same way as for an individual, except that mortgage interest is an allowable expense.

You must report and pay any tax due on UK residential property using a ‘Capital Gains Tax on UK property’ account within 60 days of selling it. (This does not apply to your home).

Because the timescales are tight, if you are thinking about selling, let us know.

We recommend that you set up your ‘Capital Gains Tax on UK property’ account as soon as you can. Tell us your:

• account number and

• UK postcode.

Once we have this information, we will ask you to authorise us as your agent.

Learn more about Capital Gains Tax.

Keep accurate records of any rents received or expenses incurred. You should keep invoices, receipts, bank statements, mileage records and any other relevant information for at least 5 years.