Tax on Rental Income
If you let out all or part of a property (including your home), how you are taxed on the rent depends on the type of letting.
If you let out all or part of a property and earn rent, this is treated for tax purposes as if you are running a rental business. You will be taxed on the overall 'net profit'. You work out this net profit by:
Adding together all your rents earned Adding together all your allowable expenses
Taking the allowable expenses away from the income
Do not include personal expenses or costs such as the purchase of the land or property itself, or the cost of purchasing machinery, furnishings or furniture.
If you let property with furniture and equipment provided (excluding UK furnished holiday lettings- see below), there are rules about what you can deduct.
For more information on finished letting, go to GOV.UK and search for ‘furnished lettings: contents’.
For the 15/16 tax year or earlier: (you must use the same method for all years):
For 16/17 tax year onwards:
Property Income Allowance
Please note that a £1,000 property income allowance has been available instead of expenses for every tax year from 6 April 2017. You can claim property income allowance of £1,000 in place of any expenses. Please let us know if you would like to use this for any tax years from 6 April 2017 onwards.
Pre-Letting Expenditure
In some circumstances pre letting expenditure may be allowed.
Furnished Holiday Lettings in the UK
Properties that are let as ‘furnished holiday lettings’ are treated differently from other properties for tax purposes. There are special rules on capital allowances and losses.
For more information on furnished holiday lettings, go to GOV.UK and search for ‘furnished holiday lettings’.
To count as furnished holiday lettings in the UK, a property must be:
Losses
A loss made on rents from property can be carried forward and used to offset profits for later years, they cannot be offset against any other income.
Rent-a-room Scheme
If you are letting furnished accommodation in your own home to a lodger and your total receipts (rent plus income from meals, laundry service, etc) are £7,500 or below (£3,750 if letting jointly), you can get this income tax-free under the 'Rent a Room' scheme. You'll have to pay tax on anything over £7,500. Or you can choose not to use the scheme if you'd prefer to pay tax under the rules for property lettings.
For more information on the Rent-a-room scheme, go to GOV.UK and search for ‘rent-a-room’.
Record Keeping
If you let out property, you'll have to keep records of your rental receipts and expenses for at least six years - whatever type of letting it is. 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.
Other Sources of Information and Guidance
For more information on the taxation of rent and other income from UK property, go to GOV.UK and search for ‘property income manual’.
If you let out all or part of a property (including your home), how you are taxed on the rent depends on the type of letting.
If you let out all or part of a property and earn rent, this is treated for tax purposes as if you are running a rental business. You will be taxed on the overall 'net profit'. You work out this net profit by:
Adding together all your rents earned Adding together all your allowable expenses
Taking the allowable expenses away from the income
Do not include personal expenses or costs such as the purchase of the land or property itself, or the cost of purchasing machinery, furnishings or furniture.
If you let property with furniture and equipment provided (excluding UK furnished holiday lettings- see below), there are rules about what you can deduct.
For more information on finished letting, go to GOV.UK and search for ‘furnished lettings: contents’.
For the 15/16 tax year or earlier: (you must use the same method for all years):
- A “wear and tear allowance’ of 10% of the net rent you earn (after deducting Council Tax, water and sewerage rates if paid by you).
- A ‘renewals’ allowance of the cost of replacing old items with a new equivalent (but you deduct any money you get from selling the old item).
For 16/17 tax year onwards:
- You can only claim the cost of replacement for certain domestic items.
Property Income Allowance
Please note that a £1,000 property income allowance has been available instead of expenses for every tax year from 6 April 2017. You can claim property income allowance of £1,000 in place of any expenses. Please let us know if you would like to use this for any tax years from 6 April 2017 onwards.
Pre-Letting Expenditure
In some circumstances pre letting expenditure may be allowed.
Furnished Holiday Lettings in the UK
Properties that are let as ‘furnished holiday lettings’ are treated differently from other properties for tax purposes. There are special rules on capital allowances and losses.
For more information on furnished holiday lettings, go to GOV.UK and search for ‘furnished holiday lettings’.
To count as furnished holiday lettings in the UK, a property must be:
- Furnished, and available for holiday letting to the public on a commercial basis for 140 day or more during the year, and
- let commercially for 70 days or more, and
- Not normally occupied continuously for more than 31 days by the same person for at least seven months of the year.
Losses
A loss made on rents from property can be carried forward and used to offset profits for later years, they cannot be offset against any other income.
Rent-a-room Scheme
If you are letting furnished accommodation in your own home to a lodger and your total receipts (rent plus income from meals, laundry service, etc) are £7,500 or below (£3,750 if letting jointly), you can get this income tax-free under the 'Rent a Room' scheme. You'll have to pay tax on anything over £7,500. Or you can choose not to use the scheme if you'd prefer to pay tax under the rules for property lettings.
For more information on the Rent-a-room scheme, go to GOV.UK and search for ‘rent-a-room’.
Record Keeping
If you let out property, you'll have to keep records of your rental receipts and expenses for at least six years - whatever type of letting it is. 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.
Other Sources of Information and Guidance
For more information on the taxation of rent and other income from UK property, go to GOV.UK and search for ‘property income manual’.