Are you getting it right on rent?

Between 1.75 and 2 million people are UK landlords, the majority of whom are private individuals with just a single rental property.

HM Revenue & Customs (HMRC) has been running a let property campaign for several years and has recently updated its examples of errors landlords often make.

Moving in together: You might have moved in with your partner and decided to rent out your own property rather than selling it. Even though your rental income is only just covering mortgage payments, you may still be making a profit. When calculating rental profit, only the interest element of mortgage payments is an allowable expense, and it is restricted for higher rate taxpayers.

Property bought as an investment: You may have bought a property jointly with the aim of renovating and then renting out. The rental expenses have to be divided between you properly. You cannot just allocate all the allowable expenses to whichever of you is paying tax at the higher rate to minimise the tax.

Divorce: You could have rented out your jointly owned property, with each of you then moving into smaller accommodations. Again, the rental profit will be taxable and will normally be split between you, based on your respective shares in the property. You will both have to declare your share of the profit.

Care home: Perhaps your parents have moved into a residential care home, and, in order to pay the care home fees, have rented out their property. The rent is still taxable even if all the rental profit received is going towards the fees. Care home fees are not an allowable expense.

Property bought for a child at university: If your son or daughter stays rent-free, then there are no tax consequences. However, should rent paying friends move in with them, the situation changes - even if the arrangement with the flatmates is informal.

If any of these situations apply to you, then please get in touch. It may be necessary to inform HMRC about any undeclared rental profit by making a voluntary disclosure - probably going back for up to six years. This will avoid the risk of higher penalties down the line if HMRC subsequently discovers the omission.


This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 12 October 2017.


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