Many people are choosing to invest in property or have inherited properties which they choose to rent out rather than sell and as a result the rental market is flourishing, whilst HMRC are restricting how landlords can claim their property expenses.
Whether you have a single rental property or portfolio of several properties, we can complete your annual rental accounts and submit them to HMRC as part of your annual self-assessment return.
Introduction to Property Rental Accounts
If you’re letting out one or two properties while in full-time employment, you will probably only need to pay income tax on the profit you make from renting your property to a tenant.
As a landlord, your tenant is liable for paying council tax, but this becomes your responsibility if the property becomes unoccupied.
How much tax do you pay on rental income?
When you rent a property to a tenant, you pay tax on any profit you make from rental income that is not covered by your personal allowance, and the amount of tax that you pay depends on which tax band you fall into.
You can calculate your profits by adding together your rental income and deducting any allowable expenses from this total.
Your rental income includes any money made from sources such as:
- Rent money paid by tenants
- Utility costs (e.g. gas, electricity, water)
- Fees for cleaning of communal space
- Parking fees
- Additional fees for the use of furniture
It does not include money from services which are not normally provided by landlords, such as regular meals, cleaning services and laundry services. These should be claimed separately as trading income instead of rental income.
When calculating your rental profit, you can lump any rental receipts and expenses together, which means you can claim one property’s expenses against another property’s income. The exception to this is overseas properties, which you may need to report separately as foreign income.
If you don’t have many expenses for your rental property in a tax year, you may be able to claim letting allowance instead which is set at £1,000 per annum.
You can also claim finance relief on mortgage costs for a property, although this is no longer claimed as an expense but is an adjustment to the Basic Rate Tax band for the year. You cannot claim finance relief if you choose to claim the letting allowance instead of expenses.
Here at Handmill Accountants we can help you navigate these complex rules around property landlords tax and also assist in completing the right paperwork to supply to HMRC.
For more information on Landlord Rental Accounts, please contact us.