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Inland Revenue Rental Income – A Guide

If you earn over £10,000 per year from property (£2,500 after your allowable tax expenses have been deducted), you will have to complete a self assessment tax return.  Filling in the property pages of your tax return can be tricky, so here is our simple guide to dealing with rental income on your tax return.

Tax expenses you can claim

Whether you let one or several houses, your property income is treated as a ‘business’.  As such, you can offset the expenses that you incur in running your property business against the rental income you receive.

The following are all allowable tax expenses that you can deduct:

  • Interest on property loans/mortgages (if you pay both capital and interest, you can only claim the ‘interest’ element)
  • Buildings and contents insurance
  • Letting agent’s fees
  • Professional fees such as legal fees for arranging a let of a year or less or accountant’s fees for completing your tax affairs
  • Repairs and maintenance to the property
  • Utility bills and Council Tax

You should always remember that you are only allowed to claim expenses that you incur solely for running your property letting business.  If you use the property yourself, or the expense is only partly for running your business then you may only be able to claim part of it.

Tax expenses you cannot claim

Whilst there are a number of tax expenses that you can claim to reduce your tax liability, there are some items that you cannot claim for.  The most common of these are:

  • Improvements to the property – whilst you are able to claim for the cost of repairs and maintenance, you can’t claim for improvements to the property that increase its value.  An extension or landscape gardening, for example, may be classed as ‘improvements’
  • Any loss that you make when you sell the property
  • ‘Capital’ costs such as furniture or the cost of the property itself

Completing your tax return

Whether you let one or several properties, you are taxed on the overall ‘net profit’ that you make. This is worked out by:

  • Totalling up all your rental income
  • Totalling up all your allowable tax expenses (as above)
  • Deducting the tax expenses from the rental income

If your total property income is under £68,000, you do not have to breakdown individual income and expenses on your tax return.  If it is over this amount, you will have to show the income separately.

You should also keep records of your income and expenses for up to six years as HMRC can ask to see this information at any time during this period.

kathy adams - Monday, January 31st, 2011

If I am renting my own property solely in order to rent another property for myself and therefore not for profit, can I offset the cost of renting a property against the income I gain from renting my own property?

TaxFix - Tuesday, February 1st, 2011

kathy adams: Renting another property is not an allowable expense.

Barbara Richardson - Monday, February 14th, 2011

My income will be less than £10,000 and my profit less than £2500. Do I still need to declare it?

shirley hamed - Sunday, May 22nd, 2011

i am renting a flat to my step-sons. do i have to declare the income (6000pa)?

Steve Le Mouton - Thursday, December 1st, 2011

If a company already owns rental properties will the interest on a loan used to build another property for future rental be allowed against the rents of the existing properties when calculating the tax.