I have a rental property investment – I get about £1,500 rent per month from my tenants but I have a mortgage and other expenses including fees paid to the property agents. I am unsure what I need to report on my tax return – can you let me know what typical expenses can be offset against the rental income?

Rental property expenses

Once you start earning income from rental properties you require supplementary land and property pages to disclose this fact on your tax return.

Any rental income that exceeds allowable expenses will be taxed at the normal UK income tax rates.

This article is based on the 15-16 tax year, there are changes being implemented to rental profits with regards to mortgage interest relief from April 2016 – more info on this can be found HERE.

On the land and property pages firstly the rental income is disclosed. This is total rents that were applicable to you personally in the tax year – before any agents’ fees etc. were deducted. For example if you own the property in a 50:50 split this will be your share only.

Allowable expenses are things you need to spend money on in the day-to-day running of the property such as:

  • letting agents’ fees
  • buildings and contents insurance
  • interest on property loans (i.e. mortgage interest but not capital repayments)
  • maintenance and repairs to the property (but not improvements)
  • services you pay for, like cleaning or gardening
  • other direct costs of letting the property, like phone calls, stationery & advertising and travel to the property.

This expenditure is disclosed on the tax return having been allocated into the following categories:

  • Rent, Rates, Insurance and Ground Rents
  • Property Repairs, Maintenance and Renewals
  • Loan Interest and other financial costs
  • Legal, Management and other professional fees
  • Costs of services provided including wages

Expenditure that is of a capital nature, such as renovation work beyond normal wear and tear costs is not included. These costs, in some cases, are included in any capital gains tax calculations when you come to sell the property.

If your letting is furnished you can claim 10% of the net rent as a ‘wear and tear allowance’ for furniture and equipment you provide. Net rent is the rent received, less any costs you pay that a tenant would usually pay (e.g. Council Tax).

Unfortunately any losses you make on rental properties can only be offset against rental income. In many cases losses can be incurred in the early stages of a buy-to-let business with these eventually being offset against future profits.