Although paying income tax on time is supposed to be easy, many landlords need help when calculating the tax owed on their rental income. Fortunately, the Government has produced an online tax tutorial for landlords.
The training is supposed to make it easier for landlords to understand how and when to pay tax on their rental business.
The information will help landlords get their tax affairs straight from day one and will keep them on track in the future.
How to work out your rental income
Your rental income is mainly the rent you receive, but it also includes any payment you accept from your tenant for the use of furniture, as well as any additional charges for services you provide, such as cleaning of communal areas, hot water, heating and repairs to the property.
If you own more than one UK rental property, you must add together all of your rental receipts and expenses, and treat them as one business when calculating your profit or loss.
However, different rules apply if your property business includes profits from overseas properties or the commercial letting of furnished holiday accommodation in the UK or in the European Economic Area (EEA). The profits/losses of these must be calculated separately from other rental properties.
When you work out your taxable rental profit, you can deduct allowable expenses from your rental income. These expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense was not incurred for the purpose of your property business, you cannot offset the cost against rental income.
These are common types of expenses that you can deduct if you pay for them yourself:
- General maintenance and repairs to the property, but not improvements.
- Water rates, Council Tax, gas and electricity.
- Insurance – Landlord policies for buildings, contents and public liability.
- Interest on a mortgage used to buy the property.
- Costs of services, including the wages of gardeners and cleaners.
- Letting agent fees and management fees.
- Legal fees for lets of a year or less, or for renewing a lease for less than 50 years.
- Accountant fees.
- Rents (if you are subletting), ground rents and service charges.
- Direct costs, such as phone calls, stationery and advertising for new tenants.
- Vehicle running costs, but only the proportion used for your rental business.
These are common expenses that you cannot claim a deduction for:
- The full amount of your mortgage payment – only the interest element can be offset against your income. Also note that the amount that you can offset is being reduced from April 2017.
- Private telephone calls – you can only claim for the cost of calls relating to your rental business.
- Clothing – you cannot claim for the cost of a suit you wore to a business meeting, for example, as wearing the suit is partly for your rental business and partly to keep you warm and decent.
- Personal expenses – you can only claim for expenses incurred solely for your rental business.
Use the Government’s online tutorial to ensure you work out your taxes correctly.