Taxation

Letting residential investment property is treated as running a business - even if you only let out one property. And if you let out more than one property in the UK, they'll all be treated as a single business.

 

Whether you let one or several properties, you're taxed on the overall 'net profit'. You work this out by:

• Adding together all your rental income
• Adding together all your allowable expenses
• Taking the allowable expenses away from the income

Working out your net profit like this means that you can offset a loss from one property against the profit from others. Your net profit counts as part of your overall taxable income.

Letting all or part of your home

If you let your home while you live somewhere else, your profits from the rent are worked out and taxed in the same way as for residential investment lettings.

The same rules apply if you let part of your home outside the 'Rent a Room' scheme. If you let part of your home this way, you can include a percentage of household costs like gas and electricity when you work out your allowable expenses.

Tax on UK furnished holiday lettings

The tax rules for furnished holiday lettings in the UK are different from the rules for residential lettings. The rules let you:

• Reduce your profit by claiming 'capital allowances' for the cost of furniture and fixtures that you provide inside the property you let
• Offset any losses against your overall income - not just against your rental income

Also, when you sell the property you may be able to take advantage of extra reliefs that'll bring down your Capital Gains Tax bill.

Tax on overseas property lettings

You'll have to pay tax on income you get from overseas property lettings (whether you bring the money into the UK or not) if you are 'resident, ordinarily resident and domiciled' in the UK. If you are 'resident' but either 'not ordinarily resident' or 'not domiciled' in the UK you may only have to pay tax on any money you bring into the UK. For an explanation of these terms and to find out more read our main article. 

If you've already paid foreign tax on your letting income, you can usually offset this against the UK tax you'll have to pay on it.

Record keeping for landlords

If you let out property, you'll have to keep records of your income and expenses for at least six years - whatever type of letting it is. HM Revenue & Customs can ask to see supporting information for your figures at any point during this time.

Even though you can't claim expenses when you use the Rent a Room scheme, it may still be worth keeping proper records. You'll need them if you decide to opt out of the scheme later.

Declaring and paying tax on your rental income

If your taxable income from rent is £15,000 or more in a tax year you must declare it on the full Self Assessment tax return. If it's under £15,000 you may be able to complete a shorter four-page return. If it's under £2,500 your Tax Office may be able to collect any tax you owe through PAYE (Pay As You Earn) if you already pay tax this way.

Further information is also available at www.direct.gov.uk