A beginner’s guide to property letting
Any property that you let out for people to live in as their home is classed as property income for tax purposes.
If you rent out part of your home such as a spare room i.e. take in a lodger you can may be able to take advantage of the’ Rent a Room’ scheme where you can get a tax free income of up to £4,250.
If you are letting out property you are entitled to ‘Allowable Expenses’ which you can deduct from your letting income. These include:
- Professional fees
- Buildings and contents insurance
- Gardening services you may pay for
- Council tax
- Maintenance/repairs (not improvements)
- Direct letting costs such as advertising and phone calls
- Mortgage interest on loans up to the original cost of the property plus improvements.
- A 10% deduction for wear and tear (in the case of a furnished property)
Note you cannot deduct these expenses under the ‘rent a room’ scheme.
The letting of property is treated the same as if you were running a business, and if you let out more than one property they’ll all be treated as one single business so losses from one will automatically set against the profits of another.
Whether you’re the landlord of one or more properties you will be taxed on the overall net profit.
You can work out your net profit in 3 steps
- Add together your rental income
- Add together your allowable expense
- Take your allowable expenses away from the income
Your net profit counts as part of your overall taxable income.
If you are letting out a furnished holiday home in the UK or EEA the tax rules are different to those for residential lettings. The rules let you:
- Reduce your profit by claiming ‘capital allowances’ for the cost of any furniture and fixtures you may provide
- Offset any losses in relation to these capital allowances against your overall income
- Obtain a preferential rate of capital gains tax on the disposal of the property.
Note there are strict letting rules relating to furnished lettings and so care has to be taken.
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