This page is a brief guide to lettings, what records you need to keep, and how to make a simple annual return of your net letting income to the Inland Revenue. It does not however attempt to cover the wider aspects of personal taxation. If you are unsure about any aspect of your tax liability, you are advised to seek further advice from your accountant or financial advisor.

• Will I have to pay tax on my letting income?
• Home letting - your tax position
• What expenses can be offset against the rent received?
• What records do I need to keep?
• Completing your income schedule
• Things you should remember:
• Things you should consider:
• Where do you go for more information?
• Example Letting Income Schedule

Will I have to pay tax on my letting income?

Not necessarily - it all depends on your personal financial circumstances. For example, if the let property is mortgaged, and the mortgage and related costs of upkeeping the property exceed the rent you receive, then it is possible that no tax will be payable.

Home letting - your tax position

Income tax is payable on rent received from property which is let. Your tax position will determine whether you pay tax or not. All profit you make from letting should be added to your other taxable income for the year, although the financial records for letting must still be kept separate.

You have to pay income tax if the total of your taxable income is greater than your tax allowances.

Rent a Room Scheme. If you let rooms within your own home, you may qualify for a tax exemption. Contact your tax office for more details. (Inland Revenue Booklet number 87)

Expenses can be offset against the rent received?

Only those expenses incurred "wholly and exclusively" for the purpose of the let can be offset against your letting income. This leaflet explains many of these allowable expenses in a later section. These might include mortgage interest, general repairs and maintenance, insurance and of course your agent's property management fees.

What records do I need to keep?

You need to keep a record of all income and expenditure incurred in relation to all lettings. The records should show to whom payments have been made and from whom income has been received.

Forms of the type shown below can be used to compile your Letting Income Schedule.

Completing your income schedule

The example schedule below demonstrates how you may calculate your tax liability on income from furnished lettings.

For your guidance in completing your income schedule, the following brief notes will help you to decide what to include and what not to include:

WATER AND OTHER RATES. Include here the full amount of water, sewerage and any other rates paid on the property if these are not paid by the tenants. In certain circumstances, a landlord may also be liable for council tax and this could then be included.

INSURANCE. You may include all insurance (buildings, contents and mortgage protection etc.) policies in connection with your property.

REPAIRS & MAINTENANCE. This may include any expenses that are for repairs and general maintenance of the property. Costs for improvements to the property cannot be fully set off against tax.

PROPERTY MANAGEMENT FEES. On request, at the end of the tax year, your letting agent should be able to provide you with details of your rental income and management fees.

WEAR & TEAR. For property let furnished, you may claim an allowance for the wear and tear of furnishings. This is calculated by taking 10% of the rental income for the year, less water rates and council tax (if paid by the tax payer). Alternatively, you can claim for replacement costs - but in most cases, the 10% allowance is both more beneficial and simpler.

Things you should remember:

• RECEIPTS. Have you kept receipts for all expenses incurred ? From 6 April 1996, all tax payers have been required to keep tax records of all purchases and receipts under the Self Assessment system. You are required to keep the records for five years.
• CAPITAL GAINS TAX. Should you sell your property, you may become liable for Capital Gains Tax. Your financial advisor can explain this in greater detail.

Things you should consider:

• Lettings Insurance. Insurance schemes are now available to protect against rent arrears and costs of legal disputes with tenants.
• Accounting. An accountant is often useful to help you prepare your final accounts.

Where do you go for more Information ?

If you would like more information, you should try the following sources:

Self Assessment

A general guide - SA/BK1

A guide to keeping records - SA/BK3

Rooms to Let - Inland Revenue leaflet IR87

These leaflets and other information are available through your local tax office.

'Which ?' - Consumers' Association Tax Saving Guide. Published annually.

Department of Environment Leaflet No. 22. Letting Rooms in Your Home.

Available from the Citizen's Advice Bureau.

Inland Revenue Tax Helpline: Tel: 0645 000444

Your Letting Agent 

EXAMPLE LETTING INCOME SCHEDULE

Property: 35 Limetree Grove, Cambridge

EXPENDITURE: