Property Rental Income and Expenses Explained

Are you thinking about buying a property to boost your income, grow your investment portfolio, or secure a comfortable retirement? Whether it's commercial or residential, managing buy-to-let properties can be costly. That’s why it’s essential to maximise your rental income and reduce your tax liability.

Declaring Your Rental Income

All rental income must be declared on your annual self-assessment tax return. If you don’t usually send a tax return, you must register for self-assessment by 5 October following the tax year you received rental income. Failing to do so could result in penalties.

Understanding Income Tax Thresholds

For the 2024/25 tax year, income tax thresholds are:

• Up to £12,570: Tax-free (personal allowance)
• £12,571 - £50,270: Taxed at 20%
• £50,271 - £125,140: Taxed at 40%
• Above £125,140: Taxed at 45%

If your rental income pushes you into a higher tax band, planning expenses carefully can help reduce your taxable income.

Paying Tax on Rental Profits

You pay tax on the profit you make from rental income. Your profit is calculated by subtracting allowable expenses from your total rental income. If you own multiple properties, profits and losses are combined, except for overseas properties, which must be kept separate.

Given the complexity of rental taxation, speaking with an accountant is always a good idea.

Allowable Expenses

Certain expenses can be deducted from rental income before calculating your taxable profit. These expenses must be wholly and exclusively for the purpose of renting out your property. Some common allowable expenses include:

Repairs and Maintenance

• Repairs to existing features (e.g., fixing a broken boiler or mending a leaking roof) are allowable.
• Upgrades or improvements (e.g., replacing a standard kitchen with a luxury one) count as capital expenditure and are not deductible against rental income.
• Any work done before renting out the property is considered capital expenditure and cannot be deducted.

Legal and Professional Fees

• Some accountant, solicitor, surveyor, and estate agent fees are allowable.
• Training course fees related to property management can be deductible.
• Not all fees qualify, so seek professional advice before claiming.

Letting Agent Fees

• Fees for finding tenants, advertising, and commission paid to letting agents can be deducted.

Motor Expenses

• If you use a vehicle for property-related travel, you can either:
  • Claim a flat rate (45p per mile for the first 10,000 miles, then 25p per mile).
  • Claim a percentage of actual vehicle costs (excluding personal use).
• Once a method is chosen, you must stick with it until you change your vehicle.

Travel and Subsistence

• Costs for business-related travel by taxi, plane, train, or hotel stays are allowable.
• If others travel with you, ensure receipts are separate.

Office Costs

• If you work from home, you can claim a portion of home expenses based on floor space and time spent working.
• Alternatively, a simplified expense rate may be available (if working from home for 25+ hours a month).

Running Costs

• Phone calls, stationery, advertising, and tenant management costs are deductible.
• Wages for cleaners or gardeners providing tenant services are also allowable.

Other Allowable Expenses

• Council tax and utility bills (if paid by you, not the tenant).
• Ground rent and service charges.
• Landlord insurance policies.

If you are unsure whether an expense is allowable, consult an accountant to avoid mistakes.

Dealing with Rental Losses

HMRC allows you to offset rental losses against future rental profits, but only against rental income (not other types of personal income). Losses from different property types (e.g., furnished holiday lets vs. standard rentals) must be kept separate.

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Stay Compliant and Reduce Your Tax Bill

The rules around rental income and expenses change frequently. To ensure compliance and maximise your deductions, professional advice is invaluable.

At Blue Rocket Accounting, we provide expert advice to landlords looking to expand their property portfolios. Our team helps ensure that all allowable expenses are claimed, helping you grow your property business while staying on the right side of HMRC.

Get in touch today! Call us at 01322 555442 or email happytohelp@bluerocketaccounting.com.

If you're considering a Buy-to-Let mortgage, we also recommend speaking to our mortgage advisor, Rebecca Burden, for a no-obligation consultation.

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Download Some Useful Content For Property Businesses

• Tax Guide for Property Letting | Blue Rocket
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• 22 Of The Most Forgotten About Expenses For Property Businesses | Blue Rocket

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