Income tax is payable in the UK on rental income from a second home or an investment property, and so all rental income must be declared to the tax authorities (except for the Rent a Room scheme). You will have to pay income tax on any profit that you make over and above your outgoings on the property, and will therefore have to inform the Inland Revenue and fill in a tax return every year. These outgoings may include:
- Accountant's and book-keeping fees
- Bills for services such as gas, electricity and water
- Buildings, contents and other insurance
- Cleaning and gardening
- Council tax
- Financial fees and loan interest payments
- Legal fees
- Management and letting expenses, such as inventory and tenancy agreement fees and advertising
- Miscellaneous expenses such as telephone calls, stationery, and travel expenses to and from the property when collecting rent or carrying out inspections
- Renewal costs for appliances and furnishings
- Repairs and maintenance to the building and fixtures (but NOT improvements)
- Security, such as a monitored alarm system
- Service charges and ground rent for an apartment
After personal allowances and expenses have been deducted, you may find that there's little or no tax to pay on rental income.
When you come to sell a property you have let out, you will also be liable for capital gains tax on any profit that you make on the sale. Capital gains tax doesn't apply to your own home as long as you have resided there throughout your ownership.
HM Revenue & Customs publishes the following useful leaflets: IR87: Letting and your home; IR150: Taxation of rents - A guide to property income; IR250: Capital allowances and balancing charges in a rental business.
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