Will I have to pay tax on my letting income?
Not necessarily; it all depends on your personal financial circumstances. For example, if the property being let is mortgaged and the mortgage, together with the related costs of property upkeep, exceed the rent you receive, then it is possible that no tax will be payable.
Letting my property?
Income tax is payable on rent received from a property that is let. Your tax position will determine whether you pay tax or not. All profit you make from letting should be added to your other taxable income for the year, although the financial records for letting must still be kept separately. You have to pay income tax if the total of your taxable income is greater than your tax allowance.
Expenses can be offset against the rent received?
Only those expenses incurred “wholly and exclusively” for the purpose of the let can be offset against your letting income. These might include mortgage interest, general repairs and maintenance, insurance and, of course, your agent’s property management fees.
The records you will need to keep?
You need to keep a record of all income and expenditure incurred in relation to all lettings. The records should show to whom payments have been made and from whom income has been received.
Who is responsible for my tax?
You are. You are obliged to submit all the relevant information to the HMRC annually to account for all your letting income.
Is this the same if I am a landlord living abroad?
As your letting agents, we are obliged to deduct tax from all rental income, unless the HMRC provides us with an approval number from The Non-Resident Landlords (NRL) Scheme. If the property is owned by more than one person, then an approval number will be required for each party, otherwise a proportion of tax will be retained. For more information, visit www.hmrc.gov.uk/cnr/nr_landlords.htm
Tax Changes from April 2017
The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of Income Tax, this will be phased in from April 2017.
The amount of Income Tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax.
The changes will:
- affect you if you let residential properties as an individual, or in a partnership or trust
- change how you receive relief for interest and other finance costs
- be gradually introduced over 4 years from April 2017
Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.
Who’ll be affected
You’ll be affected if you’re a:
- UK resident individual that lets residential properties in the UK or overseas
- non-UK resident individual that lets residential properties in the UK
- individual who let such properties in partnership
- trustee or beneficiary of trusts liable for Income Tax on the property profits
For more information check out the HMRC website at https://www.gov.uk/government/news/changes-to-tax-relief-for-residential-landlords?