UK Landlord Tax Laws

In the United Kingdom, leasing or renting out housing property is regarded as a business venture like any other. The landlord is required to pay tax on any profits he gets from the houses’ income.

Residential Lettings

Residential lettings are properties that are let out for individuals to reside in as if in their very own homes. Renting out a portion of your own home also counts as a residential letting. Though taxes do apply, tax breaks are available. The home owner can capitalise on the rent-a-room scheme whereby he or she qualifies to get an income of as much as £4,250 from renting, tax-free.

Taxable Profits

The net profit is computed by adding up the total rentincome then deducting all the allowable expenses from the sum. Having multiple residential lettings will require that the landlord groups all earnings and expenditure values together.

From the net profit, the home owner subtracts all allowances that they stand to get from their net profit. In rented furnished property, these allowances can be deducted as wear and tear (a percentage of the rent), or a renewals allowance (expense of replacing old equipment with new). Any money gained from the sale of the old items is also taken into account.

Reporting Profits to the Tax Man

Profits are reported in two categories; those less than £2,500 and profits more than £2,500. For an employed home owner or one that is liable for PAYE having a taxable income of less than £2,500, a Pay as You Earn tax code is attuned to collect the duty on property income annually. Form P810 is sent to the home owner to report his income every year.

On the other hand if the home owner is not on the Pay as You Earn scheme or earns a profit of more than £2,500, he has to fill a ‘self-assessment tax return’. For total income of more than £70,000 on property in the UK in a tax year, he/she has to declare under the land and property sections in the Self-Assessment Tax Return, showing expenses individually. If below £70,000, the expenses can be clustered as a sum figure on the tax return.

It is advisable to file tax returns online because this way all figures entered are summed up automatically. The landlord’s taxable profit acquired from house letting is added to his income. If it exceeds the tax allowances, tax on it is paid at regular income tax charges.

For joint letting, each of the parties should show their individual income and expenses, and profits or losses. All records should be filed. They include all business expenses, rent received, all bookkeeping and all income from tenants.