Rental income and expenses

Property Owners

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) under the rentalagreement, 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.

Rental income should normally be calculated on an accruals basis – that is on the basis of the income which is due in the tax year, rather than on the basis of what is received in the tax year.

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:

  • 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 
  • any costs that the tenant would normally pay, but which have actually been borne by the landlord

TaxAid helpline

Our helpline offers professional, free, confidential advice to people on low incomes