Do you earn income from letting out property?
If so, you may have to pay some tax on the income you make from your letting. Here’s our step by step guide to helping you work out how you calculate your income and how you declare it to HMRC.
Work out your income
The first step when completing the property section of your self assessment tax return is to calculate your income from property. Remember that however many properties you let out – whether it is one or a dozen – they will all be treated as a single business.
Work out your total gross income from residential lettings. This is the total income you have received during the tax year.
Work out your expenses
As letting out property is classed as a ‘business’ (even if it is just one property), you are able to deduct a number of tax expenses. The most common tax expenses you are allowed to claim are:
- Repairs and maintenance to the property
- Lettings agent’s fees
- Council tax and utility bills (if you pay them)
- Interest on a mortgage or home loan
- Professional fees such as legal fees for lets of a year or less or accountant’s fees
- Ground rent and service charges
- Buildings and contents insurance
- Cleaning or gardening services
You should remember that whilst you are allowed to claim tax expenses for maintenance and repairs, you are not permitted to claim for improvements to the property.
Work out your property business ‘net profit’
To work out your ‘net profit’, you deduct all your allowable tax expenses from your gross property income. As we have seen, if you have more than one residential letting, you group all the income and all the expense figures together.
Completing an Inland Revenue Tax return for landlords
If you are an employee on PAYE and your net profit from property is under £2,500, you do not have to complete a self-assessment tax return. Your tax code can be altered to claim the tax you owe. You will have to complete HMRC form P810 every year.
If you are not on PAYE, or it your net profit from property is above £2,500, you will have to complete a self-assessment tax return. If your net profit from property is under £68,000 you can group all the income and expenses as one figure on your tax return.
If your total income from UK property is over £68,000 (2009/10) or more in a tax year you must declare it on the property pages of your Self Assessment tax return and show your expenses separately.
Remember that you should complete your tax return by filling in the rents and expenses for the year they relate to. It doesn’t matter when you actually pay and receive them.