Guide to Rental Income and Expenses

Anyone owning property in the UK are liable to pay income tax on it if they lent it
out, in this article we will take you through how this works generally. Property income is declared on Self-Assessment which is a service provided by
Cheylesmore Accountants.

Generally, the Income Tax is calculated on Property Income by calculating profit
from these properties. Profit is calculated by Totalling the Income and
subtracting it by allowable expenses.

HMRC has some thresholds in place for income you can make in a year before
taxing you. As per HMRC, the first £1000 of rental income is tax free.

Below is a general guide on allowable expenses, this list is not exhaustive
though. If you have any queries over expenses not mentioned in this article,
please contact us and we will explain each of them for you.

Below, we look at a variety of allowable expenses you could claim:
Agent Fees
You require assistance to help find tenants to rent your accommodation. The
fee’s you pay an estate agent to advertise your property for rent are allowable.

Repairs
Genuine repairs are included and allowable. This does, however, exclude capital
expenditure so no improvements to your assets!

Motor Expenses
If transportation is required to run your property business, then you have a
couple of options around claiming expenses against your income.
Option one: You can claim the HMRC’s mileage rates of 45p per mile for the first
10,000 miles each year and then 25p per mile for the remaining miles.

Option Two: On the other hand, you can claim a percentage of the costs to run
your vehicle, though this does not include personal use of your transport, so do
not claim the total expenditure of the vehicle. You will need to determine what
percentage of travel was for business and claim only that percentage of the
costs.

Travel and Subsistence
Covers any travel by train, plane or taxi for business and hotel and food costs as
long as it is for business use only.

Office Costs
Home use for office purposes can be claimed, the easiest way is to use the flat
rate as mentioned below:
Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26

Legal and Professional Fees
You can claim some course fees where the education relates to your property
business. Even some of your accountant, solicitor, surveyor and estate agency
fees can be deducted too.

Start-up costs
Before you even start trading in property, you will likely incur some initial start-
up costs. The pre-trading expenses that would be allowable after your business
starts trading can be deducted.

Other allowable expenses
Council tax and utility bills (but only where you are paying them instead of the
tenant)
Ground rent and service charges
Insurance

Rental Losses
HMRC allows you to offset losses from one of your properties against the income
from another.

Capital Allowances
Capital expenses are not allowable and cannot be claimed against your rental
income, but you should keep records of them as you might be able to set them
against Capital Gains Tax if you sell the property in the future.
Examples of capital expenses that would not normally be allowable:
adding an extension
installing a security system if there was not one before
replacing a kitchen with one of a higher specification

Interest Relief
Some property purchases are made against an existing mortgage. When you let
out your property, you can get relief on the interest paid for the loan.

Summary
We hope that this guide was useful in providing you with insight into how Rental
Income is treated with respect to Income Tax.

We at Cheylesmore Accountants provide Self-Assessment Services,
Income Tax Management and Bookkeeping Solutions.

Feel free to contact us for a consultation.