Property income and Self Assessment: what counts
Rent from a property you let out is taxable income, and once it passes a fairly low threshold it needs to go on a Self Assessment return. The rules changed significantly a few years ago, especially around mortgage interest, so it's an area where old advice can lead you astray. Here's the current picture.
What counts as property income
The main one is rent from letting a property. It also includes related income such as payments for services you provide to tenants, and money kept from a deposit for damage. If you let a room in your own home, the Rent a Room Scheme may let you receive up to £7,500 a year tax-free instead.
The £1,000 property allowance
Like the trading allowance, there's a £1,000 property allowance. If your total property income for the year is under £1,000, it's usually tax-free and you may not need to report it. Above that, you either claim the allowance instead of expenses, or claim your actual allowable costs, whichever gives the better result.
Allowable expenses
You can deduct the running costs of letting the property, including:
- Letting agent and management fees.
- Repairs and maintenance (but not improvements, which are capital).
- Landlord insurance.
- Council tax, utilities and ground rent where you pay them.
- Costs of services like cleaning or gardening.
- Accountancy fees for the rental accounts.
The repairs-versus-improvements line matters: fixing a broken boiler is a deductible repair; installing a new extension is a capital improvement that isn't deducted from rental profit (though it may reduce Capital Gains Tax when you sell).
The mortgage interest change
This is the big one. Landlords used to deduct mortgage interest as an expense. That's been replaced by a 20% tax credit on the interest instead. So the interest no longer reduces your rental profit directly; instead you get a basic-rate reduction to your tax bill. For basic-rate taxpayers the effect is broadly similar, but for higher-rate landlords it's worse than the old system, because relief is capped at 20% rather than their marginal rate. If you have a mortgaged buy-to-let, this is worth understanding properly or taking advice on.
How it's taxed
Property profit is added to your other income and taxed at your normal Income Tax rates. It doesn't attract Class 4 National Insurance (that's only on self-employment), which is one difference between being a landlord and running a trade. Where property income sits in the overall calculation is covered in how Self Assessment tax is calculated.
Records and deadlines
Keep records of rent received and every cost claimed. Property income goes on the property pages of your Self Assessment return, filed by the usual 31 January deadline. If you've just started letting, register for Self Assessment in good time. HMRC expects you to tell them by 5 October after the tax year in which the income started.