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%.