I have been asked this question many times and the answer is invariably the same – “As a UK resident with any rental income you most certainly do need to declare your rental income”. There is no such thing as a minimal level which HMRC would not be interested in. Whether you have to pay income tax on this or not is another question.
You must contact HMRC and tell them if your income from property rental is less than £2,500 a year.
But you must report it on a Self Assessment tax return if it’s either:
- £2,500 to £9,999 after allowable expenses
- £10,000 or more before allowable expenses
You must normally pay income tax on any profit from renting out property you own – profit means all your rental income less Allowable Expenses.
Allowable expenses a landlord can claim
The most common types of expenses you can deduct are:
- water rates, council tax, gas and electricity
- maintenance and repairs to the property (but not improvements)
- contents insurance
- interest on a mortgage to buy the property (allowable until April 2018 and then this relief is being phased out over 4 years)
- costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
- letting agents’ fees
- legal fees for lets of a year or less, or for renewing a lease of less than 50 years
- accountant’s fees
- rents, ground rents and service charges
- direct costs such as phone calls, stationery and advertising for new tenants
Your rental profits after deduction of these expenses are then taxed at the same rates as income you receive from your business or employment – 20%, 40% or 45%, depending on which tax band the income falls into.
However – there is an opportunity to earn rental income that is free from tax…
Rent-a-room Scheme – The Rent a Room Scheme is a UK tax free allowance when you rent a room in your house to a third party
To qualify you must let furnished residential accommodation in your only or main home. The relief doesn’t apply to rooms let as an office or for other business purposes.
Using the rent-a-room relief scheme, you can receive up to £7,500 in 2017-18 (the same as 2016-17) gross income each year from lodgers tax-free.
What about Airbnb income?
The Rent-a-room relief applies to Airbnb ‘Shared room’ listings but no to ‘Entire place’ listings – that means that if you offer a room in your home via Airbnb and your rental income from this is less than £7,500 per year then there is no income tax to pay, however, you do still need to declare it.