How do I account for my rental income?
Most rental accounts are usually prepared on a cash basis, ie when rent is received and when expenses are paid, unless the annual rental exceeds £150,000 or you elect for it not to apply. You should keep a record of the gross rental income paid each month and a breakdown of the rental expenses, categorising each type of expenses separately. A simple spreadsheet should suffice.
What expenses are allowable?
You can claim most expenses relating to the rental business, such typical costs are;
- Agent and management fees
- New tenancy costs, like inventory or Tenancy Deposit Scheme costs
- Repairs and maintenance costs (provided they are not to improve the original fixture)
- Cost of replacement of furnishing and domestic appliances
- Mortgage interest paid up to the value the property was let, subject to new finance restrictions
- Legal and professional fees associated with the tenancy
- Advertising costs
- Service charges and ground rent
- Utilities and rates paid while available for letting
- Landlord, contents and building insurance
What are the new restricted loan interest rules?
Under new rules that came into effect from April 2017 there is a restriction to tax relief on finance costs for residential landlords. Relief is gradually being restricted to the basic rate of tax over four years and will be given as a reduction in tax liability instead of a reduction to taxable rental income. For the 2017/18 tax year 75% of finance costs are deductible from rental income with 25% available as a basic rate income tax deduction restricted to the lower of:
1. Finance costs- costs not deducted from rental income in the tax year plus any finance costs brought forward.
2. Property business profits- the profits of the property business in the tax year (after utilising any brought forward losses).
3. Adjusted total income- the income (after losses and reliefs, and excluding savings and dividends income that exceeds your personal allowance.
For 2018/19, the restriction will increase to 50%.