Any rental income after most expenses will be charged to Income Tax at your marginal income rate. The marginal tax rate depends on all of your other income. This includes the income from your job and pension.
The tax rates for 2022/23 for most people are currently:
Income: Under £12,570 | Tax Rate: Nil (personal allowance) | |
Income: £12,570 - £50,270 | Tax Rate: 20% | |
Income: £50,270 - £150,000 | Tax Rate: 40% | |
Income: Over £150,000 | Tax Rate: 45% |
Income: Under £12,570 | Tax Rate: Nil (personal allowance) | |
Income: £12,570 - £50,270 | Tax Rate: 20% | |
Income: £50,270 - £125,140 | Tax Rate: 40% | |
Income: Over £125,140 | Tax Rate: 45% |
There are different rates of tax for dividend income.
Income Tax is calculated based on the entries you make on your tax return, which will show your income from all sources including any employment income you may have. Tax is payable under self-assessment on 31 January and 31 July each year.
Those with income above £100,000 will lose their personal allowance.
Non-UK resident taxpayers may have different income tax rules and rates.You will need to report your rental profits to HMRC annually on your tax return. Tax returns are submitted online by 31 January following the end of the tax year in which you received rental income.
You need to calculate your rental profit on a tax year basis, from 6 April to the following 5 April. Rental profit is calculated as the difference between the rental income and most expenses.
The expenses that are deducted from income include repairs, decorating and letting agent fees.
If you do not incur any rental expenses, or the rental expenses you incur are less than £1,000, you can instead use the tax-free property allowance of £1,000, which can be deducted against your rental income.
If you use the allowance, you can deduct up to £1,000, but not more than the amount of your income.
If your expenses are more than your income, it may be beneficial to claim the expenses instead of the allowance.
However, if you have two businesses and claim the property allowance in one business, you may not claim actual expenses in respect of the other business.
Any losses arising from the rented property are still reported to HMRC on a tax return. They have to be carried forward and offset against any future profits arising from your rental business and cannot be offset against your other income.
If you have any questions about registering for self-assessment or Income Tax for landlords, do please get in touch with Mark Stemp, Partner, Private Clients
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