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If you rent out a property in the UK, the money you earn from it is called rental income and HMRC wants to know about it. Whether it is one room or ten houses, the rules are the same. This guide explains what you need to do.
What is rental income?
Rental income is any money a tenant pays you to live in or use your property. This includes monthly rent, fees for car parking spaces, and any money you charge for services like cleaning.
It does not matter if you own one property or many. If someone pays you to use your property, that money must be declared to HMRC the UK tax authority. If you do not tell them, you could face a fine.
Do I need to tell HMRC?
Yes, almost always. You must declare your rental income if your total rental earnings are more than £1,000 in a tax year. This is called the Property Income Allowance. Below £1,000, you do not need to do anything. Above it, you must file a Self-Assessment tax return.
A tax year in the UK runs from 6 April one year to 5 April the next. So, if you started renting a property in June, your rental income counts from that date.
Quick Tip from YRF Accountants
Even if your rental income is small, it is always a good idea to keep records of what you earn and what you spend. This makes your tax return much easier to complete — and it can save you money.
What can I deduct as expenses?
The good news is that you do not pay tax on all of your rental income. You can take away certain costs first. These are called allowable expenses. What is left over is what you pay tax on.
Some of the most common allowable expenses include:
- Letting agent fees (if you use one to manage your property)
- Repairs and maintenance — fixing a broken boiler, for example
- Buildings and contents insurance
- Accountancy fees — such as the cost of using YRF Accountants in Manchester to do your tax return
- Mortgage interest (there are now limits on how much you can claim — speak to an accountant about this)
You cannot claim for improvements that add value to the property like building an extension. That is treated differently for tax purposes.
How much tax will I pay?
Once you have taken off your allowable expenses, the remaining amount is added to your other income such as your salary or pension. You then pay Income Tax on the total amount, at your usual rate.
Basic rate taxpayers (those earning up to £50,270 in total) pay 20% tax on their rental profit. Higher rate taxpayers pay 40%. Additional rate taxpayers pay 45%.
Did you know?
If you rent out a room in your own home, you may be able to use the Rent a Room Scheme. This lets you earn up to £7,500 per year tax-free. Many homeowners in Manchester use this to earn extra money without worrying about a tax bill.
What happens if I get it wrong?
HMRC has ways of finding out if you have rental income you have not declared. They use data from letting agents, Land Registry records and bank accounts. If they find undeclared income, they can charge you the tax you owe plus interest and penalties on top.
The simplest way to avoid this is to declare everything honestly and on time. The deadline for filing your online Self-Assessment tax return is 31 January each year.
How can YRF Accountants help?
At YRF Accountants, we work with landlords all over the UK from those renting out a single room to those managing large property portfolios. As experienced accountants in Manchester, we know the rules inside out and can help you pay the right amount of tax no more, no less.
We can help you set up a Self-Assessment account, keep track of your income and expenses, claim every allowable deduction, and file your tax return accurately and on time.
Getting your rental income declared correctly is not complicated when you have the right support. Talk to YRF Accountants today and take the stress out of tax.