How do I account for my rental income?

Most rental accounts are usually prepared on a cash basis, ie when rent is received and when expenses are paid, unless the annual rental exceeds £150,000 or you elect for it not to apply.  You should keep a record of the gross rental income paid each month and a breakdown of the rental expenses, categorising each type of expenses separately.  A simple spreadsheet should suffice.

What expenses are allowable?

You can claim most expenses relating to the rental business, such typical costs are;

  • Agent and management fees
  • New tenancy costs, like inventory or Tenancy Deposit Scheme costs
  • Repairs and maintenance costs (provided they are not to improve the original fixture)
  • Cost of replacement of furnishing and domestic appliances
  • Mortgage interest paid up to the value the property was let, subject to new finance restrictions
  • Legal and professional fees associated with the tenancy
  • Advertising costs
  • Service charges and ground rent
  • Utilities and rates paid while available for letting
  • Landlord, contents and building insurance

What are the new restricted loan interest rules?

Under new rules that came into effect from April 2017 there is a restriction to tax relief on finance costs for residential landlords. Relief is gradually being restricted to the basic rate of tax over four years and will be given as a reduction in tax liability instead of a reduction to taxable rental income. For the 2018/19 tax year 50% of finance costs are deductible from rental income with 50% available as a basic rate income tax deduction restricted to the lower of:

  • Finance costs- costs not deducted from rental income in the tax year plus any finance costs brought forward.
  • Property business profits- the profits of the property business in the tax year (after utilising any brought forward losses).
  • Adjusted total income- the income (after losses and reliefs, and excluding savings and dividends income that exceeds your personal allowance.

For 2019/20, the restriction will increase to 75%.

https://www.gov.uk/government/news/changes-to-tax-relief-for-residential-landlords

PBT Accountancy Limited - For Landlords