Rental Income Taxes

Rental properties are a common investment choice in the UK. Whether you own one or many rental properties, you must declare this to HMRC through your personal tax return.

If you make a profit on your property, you may be liable to pay tax on the income, but this will be evaluated against your entire personal income and annual personal allowance. Equally, if you make a loss, then these can be accrued and offset against future rental profits.

It is valuable to note that there are a number of expenses you can claim which can be offset against your rental income. Legitimate expenses, amongst many, are:

  • Letting agent fees
  • Landlord building and contents insurance
  • Ground rent and maintenance charges
  • Repairs and maintenance of the property
  • Third party services such as cleaning or gardening
  • Loan interest

Non-Resident Landlord Scheme

If you are a non-resident, or your usual home is outside the UK, then you will need to operate the Non-resident Landlord (NRL) Scheme. You may be working overseas for a period of time for example, and want to let your property out to tenants during this period.

In this case, either your tenant must deduct UK tax at the basic rate, or your letting agent will deduct the tax from the net rent (after their expenses). You can opt to have the rent paid to you without having tax deducted, but you will still need to declare the rent on a Self-Assessment tax return.

Capital Gains Tax on Rental Properties

When you come to sell your rental property, you will probably be liable for Capital Gains Tax. There are some reliefs including lettings relief and principal private property relief, (see below) which if considered as part of your rental property portfolio, can save money in the long run.

For example, if you have lived in the rental property for a period of time at any point as your main residence, then you are entitled to principal private property relief for that period. Keep in mind however that it may not eliminate it altogether if it has been rented out for a long period of time.

If you are unclear on any of these topics, you should consult an experienced tax expert. B20 offer a free initial consultation, contact us here.

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