Rental income and expenses

Rental income

This is the total amount of rent money you receive from a tenant or a lodger (or from organisations such as the local council on their behalf) before deducting any expenses.

For example if you receive rent of £500 per month from the tenants of a property you own, the total rental income for the year would be £6,000.

Sometimes you may receive a lump sum of money from the tenant at the start of a new lease. If this money is a premium for granting the lease, rather than rent due under the lease, it is taxed in a different way. Some of it may be treated as a capital gain. This is a complex area and you should take advice. There is more information on this subject on the HMRC website at http://www.hmrc.gov.uk/manuals/pimmanual/PIM1202.htm.

Rental Expenses

You can deduct certain expenses from the total rental income. The tax you pay is based on the rental income figure after deduction of expenses. You may only deduct expenses that are the result of letting out the property. There are special rules for some types of expenses – especially property repair costs.

The sorts of expenses that you can deduct from the rent that you get are:

• electricity and gas bills, (unless you already get the cost of this back from the tenant)
• the cost of decoration and repairs (but not improvements to the property, such as extensions)
• any rent or ground rent that you have to pay
• fees you pay to a managing agent
• legal fees on renewing short leases (but not when they are first made)
• interest you may pay on a loan obtained for the purchase of the property (i.e. a mortgage)
• other interest directly related to the business may be allowed
• cost of gas safety certificates or similar requirements
• insurance