Letting a property can be a complicated business. You have to find and vet tenants every time a tenancy agreement ends. You have to make repairs and improvements to the property and deal with letting agents and insurance companies. And, you have to deal with all the financial headaches that come from letting a property including mortgage payments, collecting rent and paying tax.
Completing a tax return for letting property can also seem like a daunting task. However, it is not as difficult as it seems. Our guide explains why.
You may not have to complete a tax return
There are certain situations where you don’t have to complete a self assessment tax return, even if you do let out a property. For example, you don’t have to complete a tax return if:
- Your income from property (before deducting allowable expenses) is under £10,000
- Your income from property after deducting allowable expenses is under £2,500
In this instance, your tax office may well be able to claim the tax owed through the Pay as you Earn (PAYE) system.
To work out whether your income from letting property falls below the threshold for completing a tax return, you will need to know what ‘allowable expenses’ you are allowed to deduct from your rental income.
Allowable tax expenses for letting a property include:
- Interest on property loans
- Buildings and contents insurance
- Repairs and maintenance to the property
- Any utility bills or council tax you pay
- Letting agent’s fees
- Professional fees including legal fees for preparing tenancy agreements and accountant’s fees
Whilst you are able to claim for repairs and maintenance to the property, you are not permitted to claim for home improvements.
Working out what your property income is
Once you have identified all your tax expenses, you need to work out what your income from letting property is. You do this by totalling all the rental income that you receive and then deducting the allowable expenses.
If the result is under £2,500, you may not have to complete a tax return. If you earn more than £2,500 after deducting your allowable expenses, you will need to submit a self-assessment tax return.
Tax return for letting property
The tax return for letting property is quite simple. If your total property income is under £68,000, you simply include the total figures for income and expenses on your tax return. You do not have to break these figures down into their constituent parts.
However, it is important that you keep good records of your rental income and tax expenses in case HMRC require clarification or proof of any figures.