Completing your tax return for property that you rent out can be a tricky business.
Not only do you have to consider all the rental income that you receive, but you also have to determine what tax expenses that you are able to claim. And then, you have to take into account that there are different rules for furnished holiday lettings and the ‘Rent a Room’ scheme.
So, if you have to complete the property pages of your tax return, here are some handy hints.
You might not have to complete a tax return at all
You do not automatically have to complete a tax return just because you receive rental income. If either of these two scenarios 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. All you have to do is to ask your Tax Office to send you form P810 to report your income each year.
Tax expenses that you can claim on letting property
To reduce your tax liability on the rental income you receive, HMRC allow you to claim a number of tax expenses. So, when declaring rental income to the Inland Revenue, you are able to claim various tax allowances including:
- Letting agent’s fees
- Buildings and contents insurance
- Council Tax and any utility bills that you pay
- Repairs and maintenance to the property
- Professional fees including legal fees for lets of a year or less and accountant’s fees
- Interest on property loans
- Other expenses you pay for, including cleaning and gardening
Remember that whilst you can claim for property repairs and maintenance, you are not allowed to claim for property improvements (such as an extension or conservatory).
Declaring rental income to Inland Revenue
As we saw above, if your income from property is under £2,500 (after deducting your tax expenses) you won’t have to complete a self assessment tax return. If it is over this amount, you will have to file a tax return every year.
You can file your tax return in one of two ways:
- Complete a paper based tax return which must arrive at HMRC by midnight on 31st October following the end of the tax year
- An online tax return which must arrive at HMRC by midnight on 31st January following the end of the tax year
You will have to complete the mandatory pages on the tax return in addition to the relevant ‘property’ pages.