guide to tax

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Guide to tax on rental profits and allowable expenses

If you’re renting out a property, it’s extremely important that you’re fully aware of your tax obligations.

HMRC must always be informed when you are receiving income from letting a property – even if your rental profit is less than your personal allowances, and you have no other income.

You may need to complete a tax return, but this will depend on how much rent you receive, the profit you make and any other income, i.e. pension.


How are rental profits worked out?

Rental profit is mainly the rent you as a landlord receive, but it can also cover any potential payment you get from your tenant for the use of furniture or any services, such as repairs or cleaning.

Landlords with multiple properties will need to add everything together and treat the properties as one when working out their profit and loss.

The tax you will have to pay depends on your profit – how much you have left after you’ve added your rental income and deducted any expenses or allowances you can claim.

Visit www.GOV.UK for examples of how the rate of tax on rental profits is worked out.


What is an allowable expense?

Allowable expenses are the costs that can be taken away from your business income to work out your profit. However, these expenses must have been used exclusively for the purpose of renting out the property.

You can also claim capital allowances for certain other costs or expenses, as they aren’t allowable for tax purposes.


What are the common types of allowable expenses?

Allowable expenses can include, but are not limited to:

  • Maintenance and repairs
  • Council tax
  • Gas, electricity and water rates
  • Insurance, i.e. contents, public liability, landlords policies for buildings
  • Cost of services, i.e. wages of any cleaners or gardeners
  • Letting agent and management fees
  • Accountant’s fees
  • Advertising the property
  • Travel costs to collect rent


What can’t you claim for?

 Claims that will be rejected include:

  • Your whole mortgage payment – only the interest element can be offset against your income. However, this could be set to change under new legislations. Stay tuned to the Kingsley Hamilton Estates blog for the latest updates.
  • Private calls
  • Clothing bought to wear to a meeting related to the property
  • Personal expenses
  • Work that you have carried out on the property before you have leased or rented it
  • Home improvements (general maintenance and repairs are allowed)


Got any questions about rental profits or allowable expenses? Speak to one of our experienced agents today on 020 7078 0214.