There are a number of different ways of being a private landlord and each one has its own tax considerations. You might be thinking about joining AirBnB, renting out your spare room, letting an entire property, renting out your home when you move abroad or investing in the Multihousing sector. Whatever route you take, if HMRC consider that you are running a business as professional landlord, you need to keep them in the loop and adjust your tax position accordingly.
Last year, the estate agency Knight Frank published their ‘UK Tenant Survey UK Report’. It found that private rentals currently account for 20% of UK households and this “will rise to 24% by 2021”. In the last ten years, the number of people residing in private rentals has doubled. So if you are considering a move into becoming a private landlord, you are entering a fast growing field. The Build to Rent (Multihousing) sector is more suited to those with investment capital and is predicted to grow from being worth £25 billion to £70 billion within five years.
When do I have to tell HMRC that I’m renting out part, or all, of a property?
Sometimes, especially with informal arrangements, it is easy to think that you aren’t doing anything that involves HMRC. For example, your friend is crashing in your spare room for six months and is, rightly, paying you for this favour. To HMRC, this is still rental income that needs to be declared and taxed. Basically, if money changes hands, you are in the property business.
This includes expats who are now UK non resident landlords and are renting the home they left behind in the UK.
Rental agreements
It is essential that you have an official rental agreement with your tenants to protect both parties. There are different types of rental agreement to cater for the different variations of letting situations.
You will be taxed on any profit from your rental income. This means the difference between your total rental income and your costs as a landlord.
What costs will I have as a landlord?
There are a number of standard costs that all landlords face, such as:
- Accountant
- Legal fees
- Letting agent
- Landlords insurance
- Council tax
- Utility bills
- Service costs (gardener, cleaner etc.)
- Interest on mortgage payments
This is not an exhaustive list. You can find out more about what you can and cannot claim for in our landlord tax FAQ section.
Interest on mortgage payments
In order to level the playing field between buy to let and homeowners, the government are devaluing how much landlords can claim on mortgage interest payments. Landlords used to be able to claim all the interest payments on their buy to let mortgages. This is being cut to only 20%. In order to cushion the blow, HMRC are staggering this with incremental decreases over the next four years:
| Year | % mortgage interest against profits claim | % remainder |
| 2017 – 18 | 75% | 20% |
| 2018 – 19 | 50% | 20% |
| 2019 – 20 | 25% | 20% |
What is the Rent a Room scheme?
The Rent a Room scheme allows landlords to earn a maximum of £7,500 rental income per year without owing any tax. This works well for people in particular circumstances and it is important to get professional advice before you decide this is right for you. You have to balance out the fact that you are not allowed to claim any expenses if you join this scheme.
What if I am a UK landlord, but live abroad?
There are different rules if you own and let out UK property, but live abroad yourself as a non resident landlord. The main determiners of your tax position are your residency and domicile status. There are also a plethora of other elements which combine to define your unique non resident landlord tax status. In some cases as a non resident landlord you could be owed a UK tax rebate on the tax deducted from your rental income.
It is helpful seek professional counsel if you are a UK non resident landlord. Everyone wants to meet their fair tax liability, but no one wants to be paying over the odds on a tax bill. Given all the moving parts, like changing legislation and double taxation treaties, your tax position may be more complicated than it first appears.
Will I have to complete a self assessment tax return if I am a UK landlord?
Yes, a self assessment tax return is how you declare and pay the tax you owe, as well as receiving any tax reliefs and allowances that you are entitled to. This is an annual process that can now be completed entirely online. It is easy for landlords to pay too much tax because they are not totally au fait with the details of tax regulations. It is wise to get professional help and avoid the potential fines for missed deadlines or paperwork mistakes. No one wants to get slapped with a penalty charge on top of an unexpected tax bill.
