If you are considering buying a property to rent out or are already a landlord and looking for tax advice, then RJF Accounting is here to help! This guide will delve into what taxes you are required to pay as a landlord and what allowances are available for you to use to reduce your tax liabilities!

What Counts as Rental Income?

Landlords often get caught out by HMRC rules on what constitutes rental income, as it is not as black and white as most people think! Like any business, when you rent out a property, some allowances and expenses can reduce your tax bill but often, where landlords get into a muddle is what counts as rental income.

Rental income is ALL income from a property rented by a tenant. This includes things like:

  • Fees for utilities, including hot water, heating, broadband and water or electricity
  • Fees for cleaning, including communal areas
  • Repair bills
  • Deposit or bond deductions
  • Any non-refundable deposits

What Taxes Are Due on Rental Income?

The tax that will be due will all come down to how the property is owed and how you are set up, for instance, as a sole trader or limited company. If you are a sole trader and renting out a property, you will be required to complete a self-assessment tax return, and your rental income will be taxed the same as a salary would be via income tax.

Some allowances can be applied, and your income will depend on how the tax is collected.

  • £1000 and under – no need to declare or complete a tax return
  • £1000-£2500 – tax collected via PAYE if you are employed
  • £2500+ – required to complete a SATR

How much of your rental income is subject to tax would depend on your income from other sources, i.e. a job, self-employment income and expenses, and would fall into the 0%, 20%, 40% or 45%, depending on which tax band the income falls into. For example, based on the tax rates for 2022/23:

  • You earn £40,000 a year from your job
  • You make £15,000 in profit from a rental property
  • This puts you over the £50,270 threshold for higher-rate tax
  • You’ll pay 40% on the £4,730 above this threshold.

If you do not have income from other sources, your tax allowance of £12,500 will apply when completing your self-assessment tax return.

The rules are different if you own the property via a limited company, and we advise you to speak to a qualified accountant if this is the case to ensure that it is all done correctly. There are also different rules for renting out a single room in your main home, where you can claim “rent a room relief” for up to £7500 per year.

It is also worth noting that if you sell your rental property, it could be subject to capital gains tax if you make a profit on the sale. Again there are allowances to factor in, so if you sell your property for a profit, it is advisable to speak to an accountant.

Can Landlords Claim for Expenses?

In short, yes, landlords can claim expenses where they are incurred solely for the rental property. Examples of this are:

  • Letting agent fees
  • Water rates, council tax, gas and electricity
  • Costs of services, including the wages of gardeners and cleaners
  • Legal fees
  • Accountant’s fees
  • Rents, ground rents and service charges
  • Direct expenses such as phone calls, stationery and advertising for new tenants
  • Landlord insurance

Like with any expenses claimed by the self-employed, if only part of the expense applies to the business, then only that part can be claimed, and it must be solely for the business.

Landlords & Taxes

There are a million and one things to think about when you are a landlord, so it can be much simpler to outsource this task to an accountant when it comes to your taxes. A good accountant can ensure that your income is protected and keep you on the right side of HMRC and save you from penalties for incorrectly filing tax returns! If you are a landlord looking for solid tax advice or accountancy services, speak to the team today!