Properties that you let out for people to live in as their home count as ‘residential lettings’. For tax purposes these are treated differently from furnished UK holiday lettings.
If you rent out part of your own home this can also count as residential lettings, but you can take advantage of the ‘Rent a Room’ scheme instead. This lets you get tax-free income of up to £4,250 from letting rooms in your home.
You work out your 'net profit' as follows:
If you have more than one residential letting, you group all the income and all the expense figures together.
To arrive at your taxable profit deduct any allowances you're entitled to from you net profit:
If you let furnished property, you can deduct either of:
You may also be able to deduct certain 'capital' allowances for the cost of equipment relating more generally to your lettings business - check the detail in our related article.
If you're employed, or getting a pension through PAYE, and your taxable income from property letting is less than £2,500, your Pay As You Earn (PAYE) tax code can be adjusted to collect the tax on your property income each year. Just ask your Tax Office to send you form P810 to report your income each year. Contact details for your Tax Office are on your payslips or you can find them online.
In this case you'll need to fill in a Self Assessment tax return (you may do this already, if not contact your Tax Office).
If your taxable income from rent is £15,000 or more in a tax year you must declare it on the land and property pages of the full Self Assessment tax return. If it's below £15,000 you may be able to complete a shorter four-page return.
When you fill in your tax return, put in the rents and expenses for the year they relate to - it doesn't matter when you actually receive and pay them.
Both types of return have help notes (you can download those for the full return below).
If you complete the full return, it's quickest and simplest to file online. The figures you put in add up automatically. The filing deadlines are also more generous if you don't want to work out your tax bill yourself.
Your taxable profit from property letting is added to your overall income. If this is more than your tax allowances you'll pay tax on it at your normal Income Tax rates.
If you let property with someone else, when you fill in your tax returns, or forms P810, you should each show your share of:
The help notes for your tax return explain how to do this.
You’ll have to keep records of your property letting business for six years after the tax year they’re for. You need them to back up the figures you put on your tax return. Your records should include details of: