Rental Income and Landlord Tax Obligations

Specific landlord tax obligations will differ according to each landlord’s financial situation, so anyone considering generating rental income should consult a qualified accountant to help them figure out their particular obligations. That said, there are a number of generalisations that can be made regarding tax on rental income. This basic overview will help anyone looking for foundation level information about rental income and landlord tax obligations that they can then build on with professional help. Figuring out their own obligations regarding tax on rental income is not something that any landlord enjoys, but it is something that every landlord must complete.

Renting a Room

Under the government’s “Rent a Room” scheme, landlords renting a room in their house and providing services such as meals and laundry do not need to pay tax if the income remains below £4,250 (or £2,125 per landlord if the room is let jointly). Anything over this amount becomes liable for tax obligations. Renting a room does not have to be designated under the Rent a Room scheme however, and it can be considered a type of residential letting if the landlord prefers.

Residential Lettings

In the UK, letting a full residence is considered the same as running a small business. Regardless of how many private properties a landlord owns and lets, the overall tax obligation will be figured by:

• Adding together all rental incomes
• Adding together all allowable expenses
• Deducting the total allowable expenses from the total rental income. This figure becomes the total for landlord tax obligation calculations

Holiday Lettings

The profits from furnished holiday lettings in the UK are taxed differently than the income generated by residential lettings. After totalling the income from furnished holiday lettings, landlords are able to deduct capital allowances (expenses on upgrading furniture and equipment for the properties) and offset any losses against their total income, not just income from rentals. Selling the properties used for holiday lettings also allows landlords to bring down their Capital Gains Tax through extra relief afforded to these properties.

Overseas Property Lettings

UK citizens who generate income from overseas property lettings must only pay taxes if they are resident, ordinarily resident or domiciled in the UK. If such is the case, and the landlord has already paid tax on their overseas rental income to the country in which the property is located, the UK tax bill usually takes this already paid tax into account.

Declaring Tax on Rental Income

If the total taxable income from a landlord’s rental income totals above £15,000, the landlord must declare this income on the full Self Assessment tax return. Taxes on income between £2,500 and £15,000 must be declared on a shorter return form. Tax on income under £2,500 can be collected through the Pay As You Earn (PAYE) programme if the landlord is already taxed in this way. Regardless of how a landlord pays his/her tax, they should keep all records of their rental income for at least six years as HM Revenue & Customs can ask to see these records at any time in the six year period.

Rental income and landlord tax obligations can be confusing at the best of times, but they are things that all landlords must deal with at some point. Professional advice will help ease these burdens, so anyone considering generating an income from rental properties should earmark some of these profits for such business expenses. The rest, after paying any tax obligations, should at least partly be earmarked for some fun!

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