If you own property, whether this is land, a single buy to let property or perhaps even a portfolio of properties, and you derive income from these sources, then it is likely that you will have tax to pay.


How is it taxed?

As a landlord, you must normally pay income tax on any profit you receive from any rental properties you own. Put simply, your profit is the sum left once you’ve added together your rental income and deducted any expenses or allowances. 


What types of expenses can I claim?

As a general rule, landlords can claim the expenses of running and maintaining their property, which reduces their tax bill.  If the rent you charge covers services like water, or council tax, you’ll need to count the rent you charge the tenant within your income – but you can claim the costs you pay as an expense. 

Types of expenses that you can claim for cover repairs and maintenance, agents fees, insurances, gardening and mortgage interest. The list is not exhaustive and any expenses incurred can be included but should be wholly and exclusively as a result of renting out your property.


Mortgage Interest Relief

Under new rules in force as of April 2020, landlords will progressively lose valuable tax relief on their buy-to-let mortgage costs.

Since April 2017, the way landlords have to declare their rental income has started to change, meaning most will see their tax bills rise significantly. While borrowing money through a buy-to-let mortgage was once a major tax advantage, it’s no longer the case. As of April 2020, you are no longer able to deduct any of your mortgage expenses from rental income to reduce your tax bill. Instead, you’ll receive a tax-credit, based on 20% of your mortgage interest payments. This is less generous for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments under the old rules

For the 2019-20 tax year, you could deduct one quarter of your mortgage interest payments, while three quarters of your mortgage interest payments received the tax credit.


Do you own overseas property?

If you live and pay tax in the UK, you must tell HMRC about any rental income you receive from any overseas properties you own

If you own a property abroad, or are living abroad and letting out your property at home, you won’t escape a tax bill. You’re taxed on your foreign properties in the same way as you would be on any UK properties.


What about letting a room out in your own property that you live in?

Letting out a room in your house can be a good way of making extra money, tax-free.

the rent-a-room scheme lets you receive up to £7,500 a year from a lodger before you need to start paying tax on the income.  To qualify you must offer fully furnished accommodation in your main home – you’re not allowed to let out space as offices or for other business purposes. 

You don’t need to own the property to qualify, but if you rent you will need your landlord’s permission to sub-let.  If you are letting your own home, you will likely need permission from your mortgage provider.  In both cases, you need to get permission from your home insurance provider. 

If you have any questions around property taxation, here at F9 we have Certified Accountants and tax experts on hand who can talk to you about your own circumstances. Please do not hesitate to get in touch with us.

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