Rental Income Tax: The Landlord’s Guide

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To quote Benjamin Franklin, in this world nothing can said to be certain, except death and taxes. Letting a property is a great way to generate additional income or enhance your pension / retirement income. Unfortunately, it’s not free from rental income tax. Here’s Factotum’s guide on what to expect when you rent your property.

Firstly, the amount of tax depends on how many days per year you rent your property:

  • Festival / Holiday (property is only available to let for up to 210 days a year)
  • Full time letting on a long term or short term basis (property is let for more than 210 days a year)

Festival / Holiday

Landlords who rent their primary residence (i.e. the property they live in themselves) are entitled to £7,500 a year tax-free income. Good news for Festival landlords!

If your property is available for up to 210 days a year, and let for at least 105 of them, it is known for rental tax purposes as a Furnished Holiday Let (FHL). Any rental income tax over the £7,500 allowance depends on whether the landlord is a 20%, 40% or 45% UK taxpayer. There are some tax reliefs available for landlords that fall into this bracket:

  • Capital Gains Tax relief for traders can be claimed
  • Allowances are made for items such as furniture, equipment (e.g. white goods) or fixtures
  • Profits count as earnings for pension purposes

Full Time Letting

Moving HouseIf your property is let for more than 210 days a year, the rate of tax you pay depends on your total income for the year. This includes any income from employment, self-employment or pensions.

Expenses explicitly related to the property can be deducted as long as they are paid for personally by the landlord, including:

  • General maintenance and repairs (not improvements)
  • Council tax and utilities
  • Insurance
  • Costs of services (e.g. factoring charges, cleaning services etc.)
  • Letting agent and property management fees
  • Legal and accountant fees

The rules are by no means simple. Factotum would recommend speaking to an accountant if you are at all unsure about your personal tax liability.