Do you charge rent to someone else for living in a property that you own? Or do you sub-let a room in your house to a lodger? Having income from property means you need to consider your tax position, tell HMRC about it and possibly pay extra tax if you make a profit.
Is my property income taxable?
Your profits from renting out a property are normally taxable income. Since 6 April 2017, there has been a property allowance of £1,000 – if your rental income is less than £1,000 for 2018/19, you do not have to declare it to HMRC or pay tax on it, unless you make an election to do so.
Your rents are not taxed before you get them, so HMRC will try to collect the tax by using the Pay As You Earn (PAYE) system if you receive a coding notice or by a self assessment tax return if you are not within PAYE.
Most receipts from UK properties normally consist of rents from the tenants. But bear in mind that taxable receipts include both money payments, for example, cash, and payments in kind, for example, gardening or cleaning the property in lieu of paying rent.
You can claim certain expenses against the rents you receive and you are then taxed on the net amount, or the profit.
If you make a loss you do not have to pay any tax on your rental income for that tax year. You can only offset property rental losses against rents on other properties you let or carry them forward to future years to set against profits from renting. You cannot offset property rental losses against any other income, such as wages, self-employed profits or savings income, you may have.
A few of the expenses you can take off your rents are:
- Repairs to property, but not improvements;
- Council Tax and water charges;
- Interest payable on a rental business loan, but note that the rules for relief on interest and other finance costs are changing between April 2017 and April 2021;
- Legal and professional costs, but not those concerned with the purchase or sale of the property.
You can find more information on renting out property and the property allowance on the dedicated page in this section.
I have a lodger – what is the 'rent a room' scheme?
You might receive rents from letting out a room in your own home.
Where you have a lodger, who rents a furnished room in your home, and the income you receive each year before deducting any expenses is more than £7,000, you pay tax on the extra income above this amount.
If the rents are below £7,500 per year, or – for letting by a couple – £3,750 each, the income is tax free.
You can find more information on the rent a room scheme on the dedicated page in this section.
Where can I find more information on property tax issues?
If you have income from overseas property and have come to the UK from abroad, you might find our 'migrants section' helpful.
More on the special rules for furnished holiday lettings can be found on the GOV.UK website.
You need to be careful about capital gains tax if you sell or dispose of a property – in whole or in part. You may need to consult a tax adviser for help. You can find an adviser on the Chartered Institute of Taxation website.