Earning money from property-whether through rental income or selling for a profit-can come with tax obligations. However, there are allowances that may reduce the amount of tax you owe.
What Is Property Income?
Property income refers to any money earned from owning land or buildings. This typically includes rental income from tenants but can also cover profits from selling a property. However, it’s different from income made by running a business from a property.
Do You Need to Declare Property Income?
Whether or not you need to declare your property income depends on how much you earn. If your rental income exceeds £2,500 after expenses-or £10,000 before deductions-you must report it to HMRC through a Self Assessment tax return. GOV.UK has an overview of how to submit a self assessment tax return.
Understanding Property Income Allowances
The property allowance allows individuals to earn up to £1,000 from property income each tax year without paying tax on it. This can be used instead of deducting expenses, but not alongside them.
Who Can Claim the Property Allowance?
The property allowance is available to individuals who receive income from property they own personally, rather than through a company or partnership. However, it cannot be claimed if the income comes from a business you or a close relative controls, from an employer, or if you rent out a room under the Rent a Room Scheme. If you’re unsure about eligibility or how best to manage your rental income, consulting business accountants Evesham like https://www.hazlewoods.co.uk/expertise/business-accountants/evesham can help ensure you’re making the most of available tax allowances.
Can You Claim Both Property and Trading Allowances?
Yes, you can claim both the property and trading allowances if you earn money from both sources. For example, if you receive rental income from a flat and also work as a freelancer, you can use the £1,000 property allowance for your rental earnings and the £1,000 trading allowance for your freelance income.
Staying on top of your property income and understanding available allowances can help you manage your tax responsibilities more effectively.
How the Rent a Room scheme works
If you let a furnished room in your own home, the Rent a Room scheme lets you earn a set amount each year tax-free, with the threshold halved if you share the income with a partner. If your income stays below the threshold, the exemption applies automatically. If it goes above, you must complete a tax return and either opt into the scheme to claim the allowance or leave it out and report the income on the property pages as usual.
Before advertising for a lodger, check that the income will not affect any means-tested benefits, and remember that a single person council tax discount will be lost. Homeowners should check that their mortgage terms allow lodgers and tell their insurer, while tenants need to make sure their lease permits it.
You cannot claim expenses under the scheme, but keeping records is still wise. An inventory of the furnishings in the room is also useful if there is ever a dispute.