If you’re an owner of a property the chances are you’ll be earning income from the rental. Any income earned from a property needs to be declared to HMRC. But what exactly are your obligations? We take a look at how you register as a landlord, what is rental profit and how you minimise the costs.
When do I register as a landlord?
As a landlord, you are permitted a £1000 allowance of rental profit. Meaning, if you earn less than £1000 you will not have to pay any additional tax. If you earn between £1000-£2500 you’ll need to contact HMRC for their review. At which point HMRC may collect additional taxes in the same way they do for any salary you earn.
Earn more than £2500? You’ll need to register and submit a tax return to HMRC. Get in touch if you need help with this.
What is rental income?
Rental income consists of the rent you receive from tenants. It also includes any amounts you receive for service charges that landlords usually provide. It’s useful to note that non-refundable deposits also count as income.
Are there allowable expenses?
Allowable expenses are those incurred in the day to day running of the property. You’ll be able to expenses the following:
- Home maintenance costs
- Interest on mortgage and loans used for repair
- Management fees (letting agent, rent collector)
- Other renting costs (advertising)
- Service charges
- Utility bills (water, heat, electricity)
- Accountant fees
- Council tax
- Rent, ground rent
- You can claim non-refundable deposits if used for damages by tenants
- Wear and tear allowance (furnished lettings can claim 10% of net rent)
- You may also be able to claim for the replacement of domestic items.
To calculate rental profit (or loss) you need the rental income and allowable expenses of the property. If your profits exceed £5965 a year you’ll likely rent out more than one property. If being a landlord is your main job you are liable to pay a Class 2 National insurance as it counts as a running a business.
Tax when selling a rental property
Usually, if you make a profit on the property you sell you’ll need to pay capital gains tax. The profit is the difference between what you paid for it versus what you sold it for. The market value is used if the property was a gift.
You can deduct certain expenses from your gain:
- Estate agent/solicitor fees
- Cost of improvement works
There are certain reliefs available if you have used the property as your main residence at some point. However, unless the property is or has been your home it is treated the same way as any other asset – 18% as a basic rate taxpayer or 28% as a higher rate taxpayer. You can use HMRC’s capital gains tax calculator.
If you are a landlord or are thinking about investing in property, please contact us today to see how we can help.