Do you let out a property?
If so, you may well have to declare your rental income to HM Revenue and Customs (HMRC). To help you, here is our guide to the top ten things you should know about house lettings tax returns.
1. You have to declare rental income to HMRC
All income, whether earned through employment or self-employment or that comes from property, savings, investments or pensions has to be declared to HMRC.
2. You don’t always have to submit tax returns for house lettings
You do not automatically have to complete a tax return just because you receive rental income. If either of the following two statements applies, you won’t necessarily have to complete a tax return:
- You earn income from property (before deducting allowable expenses) of less than £10,000
- You earn income from property (after deducting allowable expenses) of less than £2,500
If you are employed, or getting a pension through PAYE, and your taxable income from property is less than £2,500, your tax code can be adjusted to collect the tax that you owe on your property income.
3. There are lots of tax expenses you can claim on house lettings tax returns
HMRC allow you to claim a number of tax expenses which can be deducted from your property income. Tax allowances that you can claim include:
- Council tax and any utility bills you pay
- Letting agent’s fees
- Interest on property loans
- Buildings and contents insurance
- Repairs and maintenance to the property
- Professional fees including legal fees for lets of a year or less and accountant’s fees
4. House lettings tax returns are different depending on the type of rental
The rules for declaring rental income depend on the type of letting. It will normally be:
- Residential letting (properties let out for people to live in as their home)
- Holiday letting in UK
- Holiday letting overseas
5. You need to claim tax expenses in the correct tax year
Make sure that you allocate property tax expenses to the year they apply to. It doesn’t matter when you pay the expenses but it does matter when they occurred.
6. Rules for the ‘rent a room’ scheme are different
If you are letting furnished accommodation in your own home to a lodger and your total receipts are £4,250 or below (£2,125 if letting jointly), you are able to earn this income tax-free under the ‘Rent a Room’ scheme.
7. You can submit house lettings tax returns in two different ways
If you do have to submit a tax return to include rental income you receive, you can do this in one of two ways:
- Through a paper based tax return (deadline 31st October)
- Through an online tax return (deadline 31st January)
8. You can’t claim for improvements to a property
Whilst you can claim for essential repairs to a property, you cannot claim improvements to a property (an extension or conservatory, for example) as an allowable tax expense.
9. You have to calculate your rental income
To work out your rental income you should: add up all the rental income you receive from your rental property/properties, add up all your allowable tax expenses and take your allowable expenses from your income.
10. You may not have to break down the expenses on your house letting tax return
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.