Landlords are required to disclose their rental income on their annual tax return. Below is an overview of the income and expenses that could be included when calculating rental profit.
Rental income is normally taxed on the accruals basis. This means you are taxed on the rent payable in the period spread evenly over the rental contract, regardless of when you actually receive the payment of the rent. If your rents receivable are less than £15,000 per year HMRC will allow you, by concession, to be taxed on the rents received basis. The normal types of income to be included as rental income would be:
- Rents paid by your tenants
- Any money retained from your tenants’ deposits to pay for dilapidations
- Insurance proceeds received in lieu of lost rents
- Premiums received
Below is a list of typical expenses that you may incur in letting your property. This list is not
- Rent you pay under a lease for the property (ie if you sublet)
- Council Tax/ business rates
- Water rates
- Service charges and ground rents
- Utility bills
- Property, contents and lost rent insurance.
- Exterior and interior painting
- Damp treatment
- Stone cleaning
- Roof repairs
- Furniture repairs
- Repairs to any kind of machinery supplied with the property
- Telephone calls relating to the letting of your property
- Travel expenses specifically linked to the management of the property (HMRC will not accept claims for travel between your home and the letting agents office)
- Rent arrears if you do not expect to ever receive the rent due
- The costs of obtaining a loan or an alternative finance arrangement to buy a property that you let. However please see below for restrictions of this relief from 2017/2018.
- Any interest on such a loan or alternative finance payments. Please see below for restrictions of this relief from 2017/2018.
- Management fees paid to an agent to cover rent collection, advertising and similar administrative expenses
- The normal legal and professional fees for renewing a lease can be deducted if the lease is for less than 50 years. You can also deduct the professional fees incurred in evicting an unsatisfactory tenant, with a view to re-letting, or in appealing against a compulsory purchase order.
- If you also provide services to your tenants, such as gardening, porterage, cleaning or something like communal hot water, you can claim for the associated costs if you can demonstrate that they were for the let property.
- A proportion of our fees will also be deductible.
- Any revenue expenses you incur “wholly & exclusively” for the rental business will be deductible.
New rules regarding the claim for replacement of furnishings came into force on the 6 April 2016 for residential properties that are not furnished holiday lets. The 10% wear and tear allowance that applied to fully furnished properties has been abolished. Going forward all landlords will be entitled to tax relief regardless of whether the property is let fully or partly furnished. The replacements of the following items are covered:
- Moveable furniture
- Furnishings (carpets, linen, carpets)
- Kitchenware (crockery and cutlery)
- Appliances including moveable white goods such as fridges , freezer’s but not appliances that are built into the property such as ovens etc.
The relief will only be given for the cost of a like-for-like replacement asset (or nearest modern equivalent) plus any costs incurred in disposing of the asset being replaced. The initial cost of furnishing a property would not be an allowable expense.
The replacement of fixtures in the property is likely to count as a repair.
Properties that qualify as a furnished holiday letting business can continue to claim capital allowances for items bought in letting the property (such as furniture) as in previous years.
The rest of this Property Tax Helpsheet includes information on Mortgage Interest and Other Finance Cost Restrictions and Rent-a-Room Relief.
If you require any further information on the 7 property landlord tax rules, please contact your
tax representative or email firstname.lastname@example.org.
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