A simple guide to the tax rules for landlords with rental property

If you own a rental property and 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 rent out can be complicated. So, before you submit your self-assessment tax return, read this useful guide setting out the tax rules for rental property.

What type of letting do you have?

Your letting will usually fall into one of three categories:

Standard residential letting
Furnished UK holiday letting
Overseas holiday letting

The tax rules for holiday lettings in the UK and overseas are different to the tax rules for rental property. For instance, with a holiday let you can offset losses against all of your income, not just property income. What’s more, you can claim capital allowances for the cost of furniture and fixtures that you provide in the property that you rent out.

What tax allowances and expenses are allowed on a residential letting?

There are a wide range of allowable tax expenses that you can deduct from the rental income that you receive from your property, including:

Utility bills
Interest payments on a mortgage or property loan
Buildings and contents insurance
Repairs and maintenance to the property
Lettings agent’s fees
Other costs related to the letting including advertising fees, phone calls and so on

You should note that there are some expenses that you are not permitted to claim for.  These include property improvements, the capital element of any mortgage payment or the costs of any furniture you buy for the property.

Working out your property income

When you fill in your tax return, you don’t have to enter the details for each property that you let separately – if your total property income is less than £68,000. If you have more than one residential letting, you can group all the income and all the expense figures together.

But remember, while you don’t have to break down the figures, it’s a good idea to keep records of your rental income and expenses to back up your tax return.

So, to work out your rental income you simply:

Add up all the rental income you receive from your rental property or properties

Add up all your allowable tax expenses  as outlined above

Subtract your allowable expenses figure from your income to work out your net income figure

If you ever need help calculating these figures for yourself, give us a call here at Walton & Allen on 0115 924 1813 or 0115 924 3304 and we’d be only too pleased to help.