What do I need to disclose when reporting my rental income?

Generally speaking, if you own a rental property you will need to disclose the income by completing a self-assessment tax return. If you are UK resident, this applies to rental properties both in the UK and overseas. If you are non-resident for UK tax purposes, you will only need to complete a UK tax return if you own a rental property in the UK.

An exception can be made if:

  • Your gross rental income is below £10,000 and;
  • Your net rental profit is below £2,500.

If you fulfil both criteria, the rental profit can be included in your PAYE tax code, where applicable.

Calculating Your Rental Profit

There are a variety of expenses that can be deducted when calculating your net rental profit. The list is not exhaustive and includes agent fees, repairs, maintenance, utility bills (if they are not paid for by the tenant) and insurance.

There is a rental allowance of £1,000 which can be claimed instead of deducting the actual expenses incurred. This can be beneficial if you did not incur any rental expenses or if your actual rental expenses are below £1,000.

If your rental income arises from renting out a room in your own house, you can choose to claim rent-a-room relief instead of calculating the proportion of your household expenses that relate to the rental income. Rent-a-room relief is £7,500, but it reduces to £3,750 if someone else receives income from letting accommodation in the same property, such as a joint owner. The limit is the same even if you let accommodation for less than 12 months.

If your rental income is covered by the rental allowance or by rent-a-room relief, you will not be required to complete a self-assessment tax return purely to declare the rental income. However, if you are already required to complete a tax return for other reasons, your rental income and the relevant allowance must be included on the tax return.

Mortgage Repayments

There are many misconceptions regarding the reporting of rental income and the deductions allowable when calculating the taxable profit. One of the most common misconceptions relates to mortgage repayments and the belief that capital mortgage repayments can be included in rental accounts. This can result in rental profits either being understated or not being reported at all.

If you have a capital repayment mortgage on a rental property, it is only the interest element of your mortgage payments that can be claimed, and then only as a tax credit at 20%; any part that relates to repayment of capital is disallowed.

Here at Plus Accounting, we will be very happy to help you with your rental property queries with our personal tax advisory and compliance services.

What impact will Mortgage Interest Relief have on my rental income?

Check out our other new blog here. 

Author: Tax Team, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date Published: 11 September 2022

Last Updated: 9 August 2022

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