If you receive income from renting out property, it is important to understand your tax obligations and the reliefs that may be available. Rental income is generally taxable, although landlords can deduct certain allowable expenses before calculating the amount of tax due.
For individuals, who personally own rental property, the first £1,000 of rental income each tax year may be covered by the property allowance. Where rental income exceeds this amount, landlords may need to contact HMRC to complete a self-assessment tax return, depending on the level of income and profit generated.
Tax is normally charged on the profit from renting out residential property rather than the gross rent received. Landlords can reduce their taxable profit by claiming allowable expenses such as letting agent fees, insurance, repairs and maintenance, utility bills, service charges, accountancy fees and advertising costs. However, costs that improve or significantly enhance a property are generally treated as capital expenditure and cannot be deducted as day-to-day expenses.
Landlords may also be able to claim Replacement of Domestic Items Relief when replacing items such as beds, carpets, curtains, sofas and white goods provided for tenants.
National Insurance may also be relevant. Landlords whose property activities amount to a business may be eligible to pay voluntary Class 2 National Insurance contributions, while others may be able to make voluntary Class 3 contributions to help maintain their entitlement to the State Pension and certain benefits.
Where multiple properties are owned, rental income and expenses are usually combined to calculate an overall profit or loss. Any losses can usually be carried forward and offset against future profits from the same property business.
