When you start letting out a property, you have to tell HMRC that you have a new income source from which they can squeeze money. Though they have no automatic way of finding out about this, don’t be tempted to keep schtum. As part of a clampdown on lettings tax evasion, HMRC gets data from estate agents, deposit protection schemes and local authorities.
How do you tell them? You need to register for self-assessment tax returns (even if you normally get taxed through your employer) and file a return every year. On the property pages, fill in your rental income, deduct allowable costs (listed below) and add the profit to the rest of your income to see how much tax you should pay. This is all pretty straightforward, but if you’re short on time or confidence, by all means get an accountant to do it for you.
HMRC’s own advisers can also give more detail on what is allowed. Contact them via hmrc.gov.uk or their telephone helpline.
» Ignore the taxman at your peril
Accidental landlords Ketan and Priya are among more than 10,000 landlords
who owned up about undisclosed rental income as part of an HMRC
campaign. The couple started letting out their Sheffield home after Ketan’s job
at the head office of an insurance company moved from the Steel City to
Birmingham, but they failed to tell the taxman. Three years on, the tax due on
their ‘it’s just temporary’ rental was £3,000. Because they came clean
voluntarily, they only got a 20% fine on top of that. Had they been caught out,
it would have been a 100% penalty and possible prosecution.