While an income from property letting is always welcome, there are some tax implications that you need to be aware of. Here’s a quick guide to your tax liability as a landlord. We explain how you can offset costs and expenses associated with the general running and maintenance of the property you rent out.
UK Resident Landlords
If you are a landlord who lives in the UK, any profit you make from renting your property will be subject to Income Tax. When we collect the rent on your behalf, we don’t deduct any tax from the rent we pay you, so you will need to inform the Inland Revenue of this income yourself. There are a number of expenses that can be offset against rental income and we would therefore recommend that you contact an accountant to find out more.
Non UK Resident Landlords
If you are treated as a non-resident landlord for UK tax purposes, you will still have to pay UK income tax on any profits you receive from renting your property. In these circumstances, we are obliged by law to deduct basic rate tax from any rent we collect and send it to the Inland Revenue on a quarterly basis.
To qualify for an Exemption Certificate, the Inland Revenue usually requires that:
- Your UK tax affairs are up to date, or
- You never had any UK tax obligations, or
- You do not expect to be liable to UK income tax
If your property is in joint names we will need one certificate for each of the joint owners and we will need to receive the Exemption Certificate(s) before we can pay your rental income gross.
How to reduce your tax liability
The Inland Revenue views landlords in the same way as businesses, which means that any costs associated with running and maintaining the property that you incur may be offset against the rental income. This can substantially reduce or even eliminate your tax liability.
Typical costs and expenses include:
- Loan interest (but not capital repayments).
- Rent, ground rent, rates and water rates.
- Professional fees: letting agents, accountants, legal fees, etc.
- Any costs of providing services included in the rent, for example, gardening.
- Costs of property repairs and maintenance.
- For furnished properties – a ‘wear and tear’ allowance of 10% of the annual rental income.
- Buildings and contents insurance.
- Make sure you keep all receipts and invoices.
If you make a loss on the rental property, you can carry this loss forward to offset against profits from the property in future years.
For more information on tax please go to www.hmrc.gov.uk