Once you start receiving rent from a property you need to declare the income on a tax return. Making sure you claim the right expenses can save you a lot of tax.
The rules on repairs and maintenance, enhancements and capital expenditure are complex. So do not take the chance and let us complete your tax return. If you own property you may also need to consider Capital Gains Tax and Inheritance Tax. Special rules apply if you have lived in the house before or after renting.
How is income from property taxed?
It is normally required of you to submit a tax return once you receive income from property. Landlords with small amounts of rental income can pay the tax through their tax code.
Therefore the first thing you would need to do is to inform HMRC that you are receiving property income by 5 October following the end of the tax year in which you received the income. The UK tax year runs from 6 April to 5 April the following year. Therefore, if you rented out your property on 1 March 2016, you would need to inform HMRC by 5 October 2016. If you do not do this you may be charged a penalty.
You should inform HMRC of your property income no matter whether you are making a profit or a loss from the property. But you pay tax only on your rental profits – that is, your rental income, less the allowable expenses (deductions) of letting. So if you have no profit, you may have no tax to pay. It is easier to stay on top of your tax affairs with our help.
There are two ways to pay the tax you owe on your rental income. These are either by entering the details on your Self Assessment tax return and paying the bill separately or by a restriction in your tax coding depending on your circumstances and amounts involved.
Income from property does not include income from: hotels, guest houses and B & B accommodation.
“You may only deduct expenses that are the result of letting out the property”
You can deduct certain expenses from the total rental income. The tax you pay is based on the rental income figure after deduction of expenses. You may only deduct expenses that are the result of letting out the property. There are special rules for some types of expenses – especially property repair costs.
The sorts of expenses that you can deduct from the rent that you get are (the list is not exhaustive):
- electricity and gas bills (unless you already get the cost of this back from the tenant)
- the cost of decoration and repairs (but not improvements to the property, such as extensions)
- any rent or ground rent that you have to pay
- fees you pay to a managing/letting agent
- legal fees on renewing short leases (but not when they are first made)
- interest you may pay on a loan obtained for the purchase of the property (i.e. a mortgage)
- other interest directly related to the business may be allowed
- cost of gas safety certificates or similar requirements
This is the total amount of rent money you receive from a tenant or a lodger (or from organisations such as the local council on their behalf) before deducting any expenses.
if you receive rent of £500 per month from the tenants of a property you own, the total rental income for the year would be £6,000.
Sometimes you may receive a lump sum of money from the tenant, usually if you are letting out a commercial property, at the start of a new lease. If this money is a premium for granting the lease, rather than rent due under the lease, it is taxed in a different way. Some of it may be treated as a capital gain.