Do you own a rental property?
If you do, and you receive rental income (after deductible expenses) of £2,500 or more, you will have to complete a self assessment tax return. The rules for calculating your income from property that you let out can be complicated. So, before you submit your return, read our useful guide outlining the tax rules for rental property.
Establish which type of letting it is
Firstly, you need to determine which type of letting you have. It will generally fall into one of three categories:
- Standard residential letting
- Furnished UK holiday letting
- Overseas holiday letting
The rules for holiday lettings in the UK and overseas are different to the tax rules for rental property. For example, 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.
What tax allowances and expenses are allowed on a residential letting
There are a number of tax expenses that you can deduct from the rental income that you receive from your property. These include:
- Utility bills
- Interest payments on a mortgage or property loan
- Lettings agent’s fees
- Repairs and maintenance to the property
- Buildings and contents insurance
- Other costs related to the letting including advertising fees, phone calls etc
You should note that there are some expenses that you are not permitted to claim for. These include improvements to the property, the capital element of any mortgage payment or the costs of any furniture you buy for the property.
Calculating your property income
When completing your tax return, you do not have to input the details for each property that you let separately (assuming that your total property income is under £68,000). If you have more than one residential letting, you can group all the income and all the expense figures together.
Whilst you don’t have to break down the figures, you should keep records of your rental income and expenses to back up your tax return.
To work out your rental income:
1. Add up all the rental income you receive from your rental property/properties
2. Add up all your allowable tax expenses (as detailed above)
3. Take your allowable expenses from your income
Don’t forget that when you fill in your tax return, you should put in the rents and expenses for the year they relate to. It doesn’t matter when you actually receive and pay them.