Paying tax on your rental income

Everything you need to know about paying tax on any rental income

Our experts at DSR Tax Claims know how difficult it can be to find good, quality information about taxes on the internet and that is why we have created these handy guides to help ease you through the tricky world of taxes and HMRC regulations. If you have property that you rent out, you might be wondering how to treat that rental income – let our experts show you how. You can also call our friendly team on 0330 122 9972 if you are unsure of anything.

Will you need to file a tax return if you rent out your property?

If you earn any income that HMRC aren’t informed about any other way (for example, through PAYE) then you will most likely need to file a self-assessment tax return to tell HMRC about this income. If you rent out your property, or even just a room in your property, then HMRC will need to know. The way that you do this is through the self-assessment system. Just because you inform HMRC and fill in a tax return, it doesn’t necessarily mean that you will need to pay any tax on that rental income though.

What if you run a property rental business?

If you are actually running a business that deals with property rental, rather than just renting out your home while it is vacant, or a room to a lodger, then you may find yourself liable for class 2 National Insurance contributions (NICs). These only apply if:

  • You turn in a profit in excess of £5,965 per year
  • Your main job is landlord
  • You rent out more than one property, and you buy new properties to let out.

If property rental isn’t your main source of income or your main job, then you won’t be liable to pay class 2 NICs but you do still have to report your earnings to HMRC through the self-assessment system, especially if you make more than £2,500 in rental income per year. If you’re not sure where you stand, call our team of experts on 0330 122 9972 and they will let you know all about your self-assessment obligations.

What if you only rent out one room?

If you are just renting a room to a lodger then things are much simpler and in fact, HMRC allow you to earn up to £7,500 in income from taking in a lodger before you are taxed on that income under the Rent a Room scheme. However, not all mortgage lenders allow you to take in a lodger so make sure you know where you stand before you let the room out.

What about furnished holiday lettings?

There are special HMRC rules for furnished holiday lettings (FHL). But to qualify, you have to meet the FHL criteria:

  • The property can’t be occupied for over 155 days throughout the year by any guests staying longer than 31 days.
  • The property needs to be available as an FHL for over 210 days of the year and you can’t include days when you stay in the property yourself.
  • The property must be let to the public for at least 105 days in the year.

If your property is classified as an FHL, then you have certain tax advantages. You might be able to claim Capital Gains Tax Relief as well as capital allowances for furniture.

If only some of your properties can be counted as FHL properties, then keep those details separate because HMRC will want to see look at them more closely.

Are there any “allowable expenses” if you rent out property?

This isn’t as cut-and-dry as you might hope but as usual, the general rule of thumb is that if it is a necessary expense for running your business then HMRC will see it as an allowable expense. These might be expenses for:

  • Council tax
  • Fees from your letting agency
  • Services, such as cleaning or gardening, that are essential to the operation of your business.
  • Utility bills

You can’t claim these if you are renting under the Rent a Room scheme though. If you aren’t sure about your allowable expenses, call our experts on 0330 122 9972 and we can put you on the right path.

Our experts at DSR Tax Claims aim to take the hassle out of your taxes. Give our friendly team a call on 0330 122 9972 and let us share our expertise with you – we’re the tax agents you can trust.

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