When an individual has an investment property in the UK, not the house that you are currently live in but one that you let out to someone else and they pay you income for it, that income you receive from the property is taxable.

For you to declare this income, you will have to register for self-assessment and submit your tax returns yearly.

And you will pay tax by 31^st of January after the end of the tax year.

The rate of tax to pay on rental income.

The rate of tax you pay depends on your normal income, for example, what you earn in a normal job.

If the property is jointly owned by husband and wife or partners, individual taxpayers would have to declare their own income in their self-assessment.

To determine how much rental income to declare on the self-assessment returns, a rental account would first be prepared.

800If the property is owned by more than one person, each share of the rental income would be declared in their self-assessment.

How to prepare a rental account?

The rental account is very important because this is what will determine your rental income.

To prepare the rental account, the rent receivable would be deducted from expenses.

The rental received is very straight forward because you know how much has been paid.

However, the one that most landlords make mistake on is the rental expenses.

The reason is that most landlords think all expenses that relate to the property should be deducted in that tax year, this is not true.

How you can easily identify your rental expenses

I would like to share three guidelines I usually say to my clients, they are as follow:

1. All the expenses that relate to the property must be properly documented.

The reason is that even if you could not deduct the expenses in the tax year, the record-keeping would help to claim tax relief in future when the property is sold.

• Any expense that is paid for yearly is most likely revenue expenditure and can be deducted in the tax year.

Examples of revenue expenses

• General maintenance and repairs to the property.
• Water rates, council tax, gas, and electricity.
• Insurance such as landlords’ policies for buildings, contents and public liability.
• Costs of services, including the wages of gardeners and cleaners.
• Letting agent fees and management fees.
• Legal fees for lets of a year or less, or for renewing a lease for less than 50 years.
• Accountant’s fees.
• Rents (if you are sub-letting), ground rents and service charges.
• Direct costs such as phone calls, stationery, and advertising for new tenants.
• Vehicle running costs (only the proportion used for your rental business).

Why are capital expenditures disallowed?

Any expenses that you have paid for that will be useful for the property for more than 2 years would most likely be capital expenditure and therefore can only be deducted when the property is sold

Some items are specifically exempted, an example of such are when you change the window of the property to a UPVC or when you replace the boiler in the rental property.

Paying for things such as repairing the ceiling, putting in a new kitchen or putting in a new bathroom is all capital expenditure because of nature.

The reason is that all these things that last for more than 3 years add more value to the property.

For example, I usually say having a new kitchen or bathroom makes the house more attractive for renting when viewed.

Therefore, the new kitchen and bathroom have added more value to the property.

The revenue expense deducted must relate to the rental accounting year.

The expense deducted must relate to the tax year that it occurred.

For pre-trading expenses, it could be deducted up to seven years before the trade.

But this would only be deductible if the item would be used in the property from the start of renting the property.

For services paid for before renting out a property, it could only be deducted if it were paid 6 months previously.

Conclusion on tax consequences of renting properties.

Thanks for reading my blog, if you would like to read changes to mortgage expenses and how it affects landlord kindly click.

However, if you will like me to support you with your tax issues, kindly contact me.