If so, you will almost certainly have to pay tax on your rental income. However, there are various tax allowances and tax expenses that you can claim to reduce the amount of tax that you will be liable for. Here’s our guide to what you can claim – and what you can’t claim – as tax allowances when letting property.
Allowable expenses on renting a house
There are various tax expenses that you can deduct from your rental income. These include:
- Interest on property loans
- Rent, ground rent and service charges
- Accountant’s fees
- Letting agent’s fees
- Any utility bills or Council Tax that you pay
- Maintenance and repairs to the property
- Other costs of letting the property (gardening, cleaning, costs of advertising)
Reporting your allowable tax expenses
If your annual income from the letting for the tax year 2009-10 is under £68,000 (before you have deducted your tax expenses) you should include the total expenses on your tax return. If your annual letting income is over £68,000, you will have to provide a breakdown of your expenses.
You should also remember that you can only claim tax expenses that are solely for running your property letting business. If the tax expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim a portion of it.
Expenses that you are not allowed to claim
There are various tax expenses that you are not permitted to deduct from your letting income. These include:
- Improvements to the property. You are permitted to claim maintenance and repairs, but you cannot claim improvements to the property (a conservatory or extension, for example)
- Personal costs that are not to do with your property letting business
- ‘Capital’ costs such as furniture or the property itself
Allowances that can reduce your taxable profit
Capital costs include expenditure you make on assets such as furniture. Whilst there are different types of tax allowance that you can claim for your capital costs they do vary according to the type of property letting.
For furniture and equipment provided with a furnished residential letting (excluding furnished holiday lettings) you can claim a ‘wear and tear’ allowance. The allowance is 10 per cent of the ‘net rent’.
Alternatively, you can claim a ‘renewals’ allowance. This covers the cost of replacing furniture or equipment. To work out your ‘renewals’ allowance you should take the cost of the replacement item and deduct from it:
- The amount you sold the old item for
- Anything additional that you paid for a superior replacement
Once you’ve chosen which of these allowances to claim for a property, you are not permitted to switch between them from year to year.