Making a profit from being a landlord needs careful management. The income received from renting out property UK property will be subject to tax, meaning landlords will need to complete a self-assessment tax return.
As well as income tax on the rental profits, landlords will also be required to pay capital gains tax on any increase in value of the property when it is sold.
Tax deductions
Landlords can deduct their expenses from the amount of income received to reduce the amount of tax payable. Expenditure can be deducted where it is incurred wholly and exclusively in respect of the rental business but not if it is capital expenditure, such as extending the property or buying more land.
Expenses that can be deducted include the following:
- Letting agent’s fees
- Maintenance charges
- Buildings insurance premiums
- Insurance against lost rent
- Repairs, provided they are not substantial property improvements. Permitted repairs include mending broken features, damp treatment, minor roof repairs and cleaning of the façade, gutters and windows
- Water rates
- Replacing windows
- Cleaning costs
- Mortgage interest
- Legal and professional fees
- Marketing costs
- Mileage for attending the property to collect rent or deal with repairs and maintenance
Where a property is fully furnished, a landlord is generally allowed to claim 10% of the rental income as an allowance for wear and tear.
Dealing with the administration
You will need to have a robust lease drawn up which deals with all likely eventualities to protect your position and your property.
It is important to be organised if you have a rental property and to keep records of your income and expenditure by way of evidence for the tax authorities. This should include invoices for work carried out, mortgage payments and interest, evidence of when the property was let and details of any gains or losses you have sustained.
You should have a separate bank account for the property where rent can be paid in and expenses paid out, to keep things clear.
It often pays to speak to an expert in property and tax affairs to ensure that you are handling matters in the most cost-effective way possible. For example, it may be beneficial to put a property into trust or to operate your property rental business through a limited company. You should also make sure that you utilise all available tax allowances, both while you own the property and in the event that you sell.
Contact us
If you are thinking of buying or selling your home and you would like to speak to one of our expert property lawyers, ring us on 0333 305 5189 or email us at info@lpropertylawyers.co.uk
