Working out your rental income, according to HMRC
Your rental income is mainly the rent you receive but it also covers any payment you get from your tenant for the use of furniture as well as charges for additional services you provide, such as cleaning of communal areas, hot water, heating, and repairs to the property.
If you have got more than one UK property, you need to add together all your rental receipts and expenses and treat them as one business when working out your profit or loss.
Different rules apply if your property business includes profits from overseas properties, or commercial letting of furnished holiday accommodation in the UK or in the European Economic Area (EEA). The profits and losses for these must be worked out separately from other rental properties.
When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense was not incurred for the purpose of your property rental you cannot offset the cost against the rental income.
Common types of expenses you can deduct if you pay for them yourself are:
+ General maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
+ Water rates, council tax, gas and electricity
+ Insurance – landlords’ policies for buildings, contents and public liability
+ Interest on a mortgage to buy the property (see below for more information)
+ Costs of services, including the wages of gardeners and cleaners
+ Letting agent fees and management fees
+ Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
+ Accountant’s fees
+ Rents (if you’re sub-letting), ground rents and service charges
+ Direct costs such as phone calls, stationery and advertising for new tenants
+ Vehicle running costs (only the proportion used for your rental business)
Expenses you can’t claim a deduction for include:
+ The full amount of your mortgage payment – only the interest element of your mortgage payment can be offset against your income.
+ Private telephone calls – you can only claim for the cost of calls relating to your property rental business
+ Clothing – for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm and decent – no identifiable part is for your property rental business
+ Personal expenses – you can’t claim for any expense that was not incurred solely for your property rental business