Money, tax and benefits

If you let out residential property outside the ĎRent a Roomí scheme youíll have to keep records of rent received and your expenses to work out the profit youíll pay tax on. You work out your taxable profit by taking your expenses and certain allowances away from your rental income.

What financial records do you need to keep?

You'll need to keep the same sorts of records whatever type of property letting business you have - residential or holiday letting, in the UK or overseas. They should include details of your:
  • rental income
  • allowable expenses
  • 'capital' costs

Rental income

You'll need to keep a note of the rent you charge, and receive and the dates you rent out each property.

Allowable expenses

Your records should include details of all your costs of letting or managing your property. Allowable expenses reduce your taxable profit. They include all or part of these costs:
  • letting agent's, accountant's and legal fees
  • buildings and contents insurance (only part if you just let part of the property)
  • property loan interest
  • maintenance and repairs (not improvements)
  • utility bills (like gas, water, electricity)
  • rent, ground rent and service charges
  • Council Tax
  • advertising
  • other direct costs of letting the property, like phone calls

Capital costs

You can reduce your taxable profit by claiming different types of allowances for the cost of furniture and equipment you provide with the property. You may also be able to deduct certain 'capital' allowances for the cost of equipment relating more generally to your lettings business.

You'll need to log how much all of these things cost and when you bought them. To back up your records keep rent books, receipts, invoices and bank statements. Also make sure that you can separate your business from your personal expenses

 Completing a Self Assessment form

If your total income from UK property is under £15,000 a year before expenses, you can group the expenses as a single total on your tax return. (You may also be able to complete the short tax return.) If itís £15,000 or more, youíll need to show them separately and complete the full return. Your Tax Office can ask to see your records at any time. So hold onto the detailed information even if your incomeís less than £15,000.

If you donít complete a Self Assessment form

If youíre employed and your taxable income from property letting is less than £2,500, your Pay As You Earn (PAYE) tax code can be adjusted to collect the tax on your property income. Your Tax Office will send you form P810 to report your income each year.

However, youíll still need to keep records, to enable you to fill in form P810. Your Tax Office can also ask to see your records to check your figures. If your income from rent is £2,500 or more youíll need to complete a tax return.

How long do you need to keep the records?

Youíll need to keep your records for six years after the tax year to which they apply - whether you complete a tax return or not.

If you get rent under the Rent a Room scheme

If you use the Rent a Room scheme you donít have to keep a record of your expenses Ė you canít claim these under the scheme. But if your rent goes over the limit (£4,250) you can opt to pay tax on all of the rent after taking off your expenses instead. So it may be worth keeping a record of your income and expenses anyway.

Records relating to the purchase or sale of a let property

If you make a gain (profit) when you sell a property thatís not your main home you may have to pay Capital Gains Tax (CGT). Some of your property costs can be deducted when working out your gain, so youíll need a record of:
  • when you bought and sold it
  • the purchase and sale price
  • buying and selling costs, like Stamp Duty and legal fees
  • improvement costs and dates

You may qualify for other relief's or allowances depending on how long youíve owned the property and if it was ever your main home. If you have a single lodger, this will not affect your entitlement to relief when you sell your main home but they must live as part of your family. If you have more than one lodger, you will be treated as letting part of your home and might have to pay some CGT.

If the property was used for a UK furnished holiday letting business there are special CGT relief's

Non-financial records

Youíll also need to keep other records to show that your propertyís safe to let out.