Self-assessment and property income

A common source income that needs to be declared on your self-assessment tax return is income from renting property out. This can come from various sources and is dealt with in a number of ways.

Renting a room in your home

If you rent out part of a property which is your only or main home you may have to pay income tax on the rental that you receive. Under the governments Rent a Room scheme you may earn £7,500 a year tax free if you rent out furnished accommodation. This is halved if you share the income with your partner or someone else. You are able to deduct expenses from the income you receive to reach the taxable income.

The exemption is automatic if you earn less than £7,500 a year and you do not need to do anything. If you earn over the threshold you need to complete a tax return, on the tax return you can opt in to the Rent a Room scheme. You can also choose not to opt in to the scheme and record your income and expenses on the property pages of the tax return.

This scheme is also available to you if you run a bed and breakfast from your main home.

Renting other property

If you rent out properties that are not you primary residence then the first £1,000 of your property rental income is tax free, this is known as your ‘property allowance’.

You must report your property income on a self-assessment return if your property rental income is between:

  • £2,500 and £9,999 after allowable expenses

  • £10,000 or more before allowable expenses

If the property is owned by a company then you report the income the same way as any other business income.

There are a number of allowable expenses that you can deduct from the rental income that you receive, these will reduce the tax owed on property income. Allowable expenses are things that you spend money on in the day to day running of a property, including:

  • letting agents’ fees

  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years

  • accountants’ fees

  • buildings and contents insurance

  • interest on property loans

  • maintenance and repairs to the property (but not improvements)

  • utility bills, like gas, water and electricity

  • rent, ground rent, service charges

  • Council Tax

  • services you pay for, like cleaning or gardening

  • other direct costs of letting the property, like phone calls, stationery and advertising

You cannot deduct amounts for capital expenditure such as buying or renovating a property.  There are a number of reliefs that you may also be eligible for including Replacement of domestic items relief, wear and tear allowance, as well as different rules for furnished holiday homes and commercial properties.

Remember that if you need to complete a self-assessment tax return you must register with HMRC by 5th October. If you would like help completing a tax return or don’t know whether you need to complete one please get in touch with us at 2 Sisters Accounting.