The amount of tax you pay on your rental income is largely determined by how much profit you make and your job status. We'll go over how to measure your rental income, how to report it to HMRC, and more tax advice for landlords in this guide to landlord tax.
What kind of taxes do tenants have to pay?
Landlords are responsible for paying income tax and corporate tax on the home. If a tenant is present, corporation tax is their responsibility. Any revenue from rent charges will be taxed by HMRC. We, as cheap accountants in London, should make this process easier for the property owner.
In the United Kingdom, there are three forms of taxes: income tax, national insurance, and VAT. If you rent out one or two properties while working full-time, you would most likely only have to pay income tax on the profit you receive from the sale of your property to a tenant.
Your occupant is responsible for paying council tax as a landlord, but if the property is vacant, you are responsible for it.
You must report to HMRC that you are starting a company if you are a full-time landlord, in which case you will be taxed accordingly.
What percentage of your rental income do you pay in taxes?
When you rent a property to a tenant, you must pay tax on any rental income benefit that exceeds your personal allowance, which is £12,500 for the 2020-2021 tax year. The amount of tax you pay is determined by which tax bracket you are in.
You will work out your earnings by adding up all of your rental income and subtracting any allowable expenses.
Any money earned from sources other than rental income is included in your rental income.
Rent is money that tenants pay.
Costs of utilities (e.g. gas, electricity, water)
Cleaning fees for communal areas Parking fees
Fees for the use of furniture are extra.
It excludes funds from facilities that are not typically offered by tenants, such as daily meals, washing, and laundry services. Instead of rental income, these can be claimed separately as trading income.
You can combine both rental receipts and expenditures when determining your rental benefit, which means you can deduct one property's expenses from another's profits. Overseas assets are an exception, and you will need to disclose them separately as foreign profits.
Landlords' allowable expenses
Certain tax incentives are applicable to landlords. The following costs will be deducted from your rental income if they were incurred solely for the purpose of renting out your property
Insurance is a form of protection (including landlord insurance)
Land maintenance and repairs in general
Rates for water, sewerage, coal, and electricity
Interest on the mortgage that was used to purchase the home
Fees charged by a letting agent or a management company
Fees charged by accountants
Legal penalties for leases that are less than a year old or for lease renewals that are less than 50 years old.
Rents, land rents, and utility charges (if you're subletting)
Wages and other resources provided by hired help
Costs of living (e.g. phone calls, stationery, advertising expenses)
Operating costs of a vehicle (you can claim the portion used solely for your rental business)
For any expenses you claim, you should always keep copies of receipts. Scanning or photographing these receipts and saving them on your machine is a good idea. HMRC has the right to seek evidence of any expenses you claim up to six years after you claim them.
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