Reminder to all landlords – rental income is taxable!
- TBA
- Sep 27, 2024
- 3 min read
Updated: Feb 25
Today, we would like to issue an important reminder to landlords, as well as to anyone considering entering the rental market. Whether you’re already a seasoned landlord or thinking about investing in rental properties, it’s crucial to understand that rental income is considered part of your personal income and is, therefore, subject to taxation.
As a result, HMRC will tax your rental income according to income tax rules, just as it would with any other form of income you receive. This means keeping accurate and clear records is vital in order to comply with tax regulations and avoid unnecessary complications.
1. What exactly counts as rental income?
This doesn’t only refer to the monthly rent you collect from tenants. It includes any other payments you might receive in connection with the services you provide as a landlord. For instance, if you offer additional services, such as paid cleaning services for communal areas or grounds maintenance that your tenants pay for separately, these payments are also considered by HMRC.
Even if you charge tenants for utilities or provide furniture as part of a furnished let, any payments you receive in these capacities should be declared as part of your rental income. It’s important to ensure all these sources of income are recorded accurately, as failing to declare any form of rental-related income can lead to fines or penalties.
2. How can I manage my rental income better?
Managing rental income efficiently is key to reducing your tax liability and staying organised throughout the year. Besides the obvious task of keeping clear, organised records, landlords can benefit from various schemes and strategies aimed at reducing their tax burden.
One of the most straightforward and commonly utilised methods is by deducting qualified expenses. These qualified expenses can include a wide range of costs, such as property management fees, letting agent commissions, maintenance costs, repairs, and accounting fees. By declaring these allowable expenses, you can significantly reduce your total taxable income, which, in turn, lowers the amount of tax you are required to pay.
There are also other tax reliefs that landlords may be eligible for, depending on the type of property and the specific circumstances.
For example, the Wear and Tear Allowance was previously available for landlords of fully furnished properties, allowing them to claim for depreciation of furniture and fixtures. Though this scheme has been replaced with a new relief system, landlords can still claim for replacing furnishings, appliances, and other essential items in a rental property.
Another option to explore is the Rent a Room Scheme, which allows you to earn up to £7,500 per year tax-free if you rent out a furnished room in your home.
Understanding these allowances and staying informed about changes in tax regulations can help ensure that you’re taking full advantage of available reliefs and deductions, making your rental business more profitable.
The importance of seeking professional advice
While it’s entirely possible to manage your own rental income and expenses, taxation rules can often be complex and subject to frequent changes. For landlords, especially those with multiple properties or more complicated rental arrangements, the support of a professional accountant or tax advisor can be invaluable.
A professional can assess your individual circumstances, ensure that you are claiming all the deductions and reliefs you’re entitled to, and help you formulate a tailored tax plan that suits your specific needs.
By seeking expert advice, you can avoid making costly mistakes and save time in navigating the often intricate world of taxation. A qualified accountant can also provide guidance on long-term tax planning, such as how to handle income from multiple properties, how to manage vacancies, and how to prepare for future tax changes. Remember, taxation doesn’t have to be overwhelming or stressful with the right advice and planning in place.
For more assistance, or to discuss how best to manage your income and taxes, contact TB Accountants. We’re here to help make tax compliance easier, so you can focus on the success of your rental business.