Property Income

Property rental as a business

Renting a property is treated by HMRC as a business activity. That means you must comply with the rules around notification and reporting, keep proper accounts, and pay tax on any profits through Self Assessment. The tax year runs from 6 April to 5 April, and your rental profits are taxed in the year they arise.

One piece of good news: National Insurance is not charged on rental profits, unlike trading income from self-employment. This applies across the range of property income sources, including:

• Furnished and unfurnished lettings
• Furnished holiday lettings (which benefit from additional reliefs and are treated as trading income for most tax purposes)
• Payments received from a tenant or licensee for the use of furniture
• Rents from static caravans in the UK and permanently moored houseboats

Deposits charged to tenants are not treated as income as long as they are genuinely refundable when the tenant vacates. They remain the tenant's money held in your account, not yours to keep.

Expenses you can claim

The general rule is that you can deduct expenses you incurred wholly and exclusively for the purposes of the property rental business. The most commonly claimed expenses are:

• Advertising: the cost of advertising for tenants, including online listings
• Council Tax: if you are paying council tax on the property during void periods, this is deductible
• Legal fees: for chasing outstanding rents or taking court action against a tenant, but not for buying or selling the property
• Mortgage interest: the interest element (not the capital repayment) of a buy-to-let mortgage is the largest single claimable item for most landlords. Interest on a personal loan taken out to fund a deposit is also allowable. Note that for residential properties, income tax relief on mortgage interest has been restricted to the basic rate since April 2020. Seek advice on how this affects your position
• Management expenses: fees paid to a letting agent or property management company
• Professional fees: including accountancy fees for preparing your letting business accounts and valuations for insurance purposes. Architects' and surveyors' fees for improvements are not deductible, though repairs are
• Repairs, maintenance, and insurance: routine repairs and maintenance, buildings and contents insurance, central heating service contracts. You can replace single-glazed windows with double-glazing as this is generally treated as a repair rather than an improvement

What landlords often ask us about

Beyond the basics above, there are a number of areas where specialist advice pays for itself:

• Capital Allowances: available for certain items in furnished holiday lettings
• Renovation and conversion: specific tax reliefs may be available when converting commercial property or renovating empty homes
• Letting your spare room: the Rent a Room scheme allows tax-free income up to a threshold if you let a furnished room in your own home
• Retrieving losses: understanding how to carry forward losses and use them effectively
• Holiday lets abroad and in the UK: the qualifying conditions and tax treatment are specific and distinct from ordinary residential lettings

Keeping records and filing your return

HMRC expects you to keep records of all rental income received and all expenses incurred, backed by receipts and bank statements. The tax return for a property rental business is filed as part of your annual Self Assessment return, covering income and expenses for the full tax year. Keeping accurate records throughout the year, rather than trying to reconstruct them from memory in January, makes this far simpler and reduces the risk of an enquiry.