Self Assessment tax returns and rental income
Owning and renting property can have tax implications. As a landlord, you need to be aware of your income and capital gains tax liabilities. You’ll also need to ensure that any income from rental properties not held in your limited company are included in your Self Assessment tax return.
Any properties held in your limited company are reported in your company accounts and corporation tax return. They are not subject to Self Assessment
Tax implications of renting property
As a landlord, you need to pay tax on any profit that you make from renting out one or more properties. How much you pay depends on both:
- how much profit you make
- your personal circumstances
Your profit is simply the amount that’s left once you’ve added together your rental income and taken away the expenses or allowances that you can claim.
If your income from property rental is less than £2,500 a year, you must contact and alert HMRC to this.
You must report your property income on a Self Assessment tax return if it’s:
- £2,500 to £9,999 after allowable expenses
- £10,000 or more before allowable expenses
Please be aware that there are different landlord responsibilities and tax implications when it comes to renting out property in Scotland. You can find more information on these differences here
What is rental income?
Your rental income is mainly the rent you receive. However, this also covers payments you receive from your tenant for:
- the use of furniture
- charges for additional services you give such as:
- cleaning of communal areas
- hot water
- heating
- repairs to the property
If you have more than one UK property, your rental receipts and expenses should be added together and treated as one income when working out profit or loss. However, different rules apply if you receive profits from overseas properties or commercial lettering of furnished holiday accommodation (both within the UK and EEA). The profits and losses from these properties will be worked out separately from other rental properties.
There are different tax rules for residential properties, furnished holiday lettings and commercial properties. You can find more information on rental tax rules here
Offsetting expenses
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 wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income.
Common types of expenses that you can deduct if you pay for them yourself include maintenance and repairs to the property, insurance and letting agent fees. An extensive list of common expenses landlords can deduct can be found here.
Recording your income and expenses
It’s important to keep accurate records of the rent you’ve received and any expenses incurred, these are vital to working out the profit you’ll pay tax on when it comes to completing your Self Assessment Tax Return.
The records you keep should include receipts, invoices, bank statements and mileage logs. We’ve created a helpful spreadsheet to help you keep your records in order for any properties not held in your limited company.
In order for us to accurately complete your Self Assessment tax return please let us know the details of the rented out properties not held in your limited company. Please use this guide for details of what we need
HMRC can charge a penalty if your records are not accurate, complete and readable or if you don’t retain them for the required period of time. You could also face a penalty if your Self Assessment tax return is incorrect.
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