If you let a property, you will have to declare your income from the letting to HM Revenue and Customs (HMRC). Most landlords of houses will have to complete a tax return in order to declare their property income.
Here are five easy steps to completing a tax return for all landlords of houses.
1. Work out whether you need to fill in a tax return
Not all landlords of houses need to complete a self-assessment tax return.
If you are employed (or getting a pension through PAYE) and your taxable income from property is less than £2,500, your Pay As You Earn (PAYE) tax code can be adjusted every year to collect the tax on your property income. You need to ask your Tax Office to send you the form P810 to report your income each year.
If your profit is £2,500 or more or you’re not on PAYE then you will need to fill in a Self Assessment tax return.
2. Work out what type of letting it is
As the rules are slightly different for different types of letting, you will need to determine which type of letting you have. It will generally fall into one of three categories:
- Standard residential letting
- Overseas holiday letting
- Furnished UK holiday letting
The rules for holiday lettings in the UK and overseas are different to the tax rules for standard rental lettings. For example, with holiday lettings you can offset losses against all your income (not just property income) and you can claim ‘capital allowances’ for the cost of furniture and fixtures that you provide in the property that you let.
3. Work out your total rental income
Even if you only let one property, HMRC will treat this as a property business. So, to work out your property income, you should total up the gross rental income you receive from all the properties that you let in the appropriate tax year.
If your total income from UK property in the 2009-10 tax year is under £68,000, you can group the expenses as a single total on your Self Assessment tax return. If your property income is £68,000 or more, you will need to show your expenses separately.
4. Deduct your allowable tax expenses
HMRC allow you to deduct certain expenses incurred through letting property. These include:
- Interest on property loans
- Letting agent’s fees
- Maintenance and repairs to the property
- Council Tax and any other utility bills that you pay
- Buildings and contents insurance
- Rent, ground rent and service charges
You should deduct these allowable tax expenses from your gross rental income before declaring your rental income to HMRC.
5. Tax return for landlords of houses can be submitted in two ways
If you have to submit a tax return as the landlord of houses, you have two options. You can do this:
- Through a paper tax return (deadline is 31st October)
- Online (deadline is 31st January)