What are the tax rules for renting out a property?
Dear Gareth,  My wife and I inherited her fathers property after he died and we have decided that we are going to let it out for a few years. I have worked as an employer for all my life, and never had to deal with tax affairs. Name and address supplied  Gareth writes  First, the basics. Rental income is added to any other income you get and taxed at income tax rates  between 20 per cent and 45 per cent in England, Wales and Northern Ireland, and from 19 per cent to 46 per cent in Scotland. Get financial advice and industry news, to you help manage your money Email address is invalid Thank you for subscribing! Sorry, there was a problem with your subscription. But the actual rental income is not the only thing that could be subject to tax. It also includes the services you provide as a landlord. If you pay someone to clean a communal area, or pay the water bill on behalf of the tenant and receive the cost from them, this will be recorded as taxable income. This can also include any remaining deposit that is left over. This might sound intimidating, but you will not necessarily pay income tax on all revenue generated from the property. You can deduct expenses, and you will pay income tax on the profits you have remaining. These expenses must be incurred as part of running and maintaining the property. As I mentioned, you will have to count the income you receive from the payment of a water bill, but you can then deduct that bill as an expense. Other expenses could be council tax, utility bills, cleaners, legal and accountancy fees and direct costs, such as advertising for tenants. If you decide to do some structural work, perhaps to prepare it for tenants, you wont be able to deduct that from rental income. But you could use this to offset a capital gains tax bill in the future when you decide to sell it. You can also claim tax relief on replacing goods in the property  cookers, washing machines, kettles etc. The key here is replacing  you dont get tax relief for kitting out the property. The rules are a little complex: you can only get tax relief as a like-for-like replacement. Say you swapped a 400 fridge for a 700 fridge for your tenants  you would only be able to get tax relief on the first 400 of that purchase. You can get a 20 per cent tax credit on the mortgage interest payments you make on the property  this is only relevant for those who have borrowed to purchase a buy-to-let property, which doesnt apply to you as you have inherited the home. And you can deduct losses from renting out the property from future profits. Tax is paid on your profits made within the tax year, which runs from 6 April to 5 April the following year. This applies to income earned and expenses incurred. To pay your bill, you will need to complete a tax return  the deadline is 5 October to submit a tax return by paper, and 31 January if you submit online. If you start renting out the property this year, you will need to file your tax return by 31 January 2023 at the latest, which is also when you will need to pay your bill. If you earn more than 10,000, you will need to complete the main tax return, or if your rental income is above 2,500 after expenses. If its below that amount, HM Revenue and Customs can deduct the tax through the pay as you earn system.