Buy to let, a property portfolio or a holiday let needs little in the way of explanation; extra income whether it be part time or full time. However, it is good to have an understanding of the tax provided for within the earning of rental income. Here, you will find simple steps on rental income tax and main aspects of how to calculate the taxable profit, the rates used as well as key dates for landlords. 

Understanding Tax on Rental Income

Self-Assessment for Landlords

HMRC requires all landlords in the UK receive their rental income and assess it before filing it through self-assessment. Tax year is from 6th of April 2027. 

- Income Under £1,000: Income derived from rents of less than £1,000 is within the property allowance which entitles the landlord to tax exempt income. 

- Income Between £1,000 and £2,500: As for the reporting, landlords should consult with HMRC. 

- Income Above £2,500: Self assessment registration and filing tax returns themselves are compulsory. 

Rent-a-room relief is available if you let out a part of your main residence, the tax-free limit of earnings is £7,500. 

For landlords owning properties in UK but residing in other countries, tax procedures are unique. Income tax can be paid through pay as you earn or else one can file the Income tax returns. 

Making Tax Digital (MTD) 

From April 2026, making tax digital will become mandatory for landlords whose property income is more than £50,000. For individuals, businesses and groups with income more than £30,000, MTD will start from April 2027. MTD involves record keeping in digital format and filing returns to HMRC on a quarter basis so that taxes are well recorded. 

How Does Tax on Rental Income Work?

Types of Taxable Income

- Rent payments 

- Payments for such things as gas, electric, water bills, necessary improvements or cleaning charges. 

- Non-refundable deposits 

Transactions for which portions are returned to customers are recorded in the financial statements as retained amounts. 

Deductible Expenses

Allowable expenses, which must be incurred wholly and exclusively for the rental business, include: 

Letting fees and cost of an attorney for short term tenancy. 

– Repairs more than half way during a building’s lifecycle and improvements are done at extra cost. 

- Utilities and council tax 

- Property insurance 

- Advertising costs 

- Cleaning, and Gardening Services 

- These include replacement of domestic items that were provides to individuals during low moments in their lives. 

– Costs incurred in paying an Accountant for professional services in managing your letting business. 

You may also claim the property allowance (£1,000) if your allowable expenses is less than this amount of money. However, this allowance cannot be claimed if the property income relates to such associated enterprises, the companies or partnerships which are controlled by you or your relatives. 

Calculating Taxable Profits 

The taxable profits can be computed on cash basis as well as on the basis of ’’accruals". 

- Cash Basis: In specific, realization of income and expenses is when they are received or paid in cash. 

- Accruals Method: A business person must accrue revenue and expenditure to the period in which the transactions relate whether cash was exchanged or not.   

Tax Rates on Rental Income

England and Wales Tax Rates (from 6th April 2024)

Scotland Tax Rates (from 6th April 2024) 

If you earn above the personal allowance, you will be charged tax on profits after the expenses and the reliefs have been subtracted. 

National Insurance Contributions (NICs) 

From 6th April 2024, those landlords with trade profits above £12,570 are not obligated to pay their Class 2 NICs.

Additional Considerations for Landlords 

Buy-to-Let Mortgage Tax Relief

For head of households, expenses such as mortgage interest expenses on residential properties are not allowed as deductions against income. Instead,a 20?sic rate tax credit is applied on the allowable amount of finance costs. 

With regards to furnished holiday lets (FHL) or commercial properties, mortgage interest is allowed in full. 

Reporting and Paying Tax 

- Self-Assessment Deadlines: 

 - Paper Returns: On 31st of October subsequent to the tax year 

 - Online Returns: 7th February one calendar year after the end of the tax year 

- Tax Payment Deadlines: 

 - Balancing payments: 31st January 

 - Payments on account: 31st January and 31st July 

In case of making a late submission or payment, one has to face penalties as well as some charges for interest. 

Losses on Rental Income 

If there are losses, which will be where expenses are greater than income, these losses can be brought forward and used against future rents. There are differences with regard to property that is located within the United Kingdom and tenant’s property in overseas locations. 

Capital Gains Tax (CGT) on Property Sales

It remains that landlords trading in tenanted properties could be exposed to CGT, particularly in the case of buy to lets or second homes. Lastly, intention to renounce the Status of UK resident is determined based on intention of the seller resident in UK must report gains within one tax year period after the end of that accounting period in which the chargeable event occurred or within two years beginning from the relevant event or such other date as HMRC might specify and any person not resident in UK but who has disposed of any relevant United Kingdom property must report such disposal however regardless of any gain. 

How TVR Accountants Can Help

At TVR Accountants we have a niche in dealing with the taxation issues of landlords. Whether you need to complete a self assessment tax return, need capital gains tax assistance on your property business or require ongoing property business management, we have solutions for you. 

Call us now to talk to the property accountant specialists and get a consultation on our services. Let us remove all the concerns and worries about your rental property process