{"id":13862,"date":"2023-07-17T06:58:00","date_gmt":"2023-07-17T06:58:00","guid":{"rendered":"https:\/\/www.theukrules.co.uk\/?page_id=13862"},"modified":"2023-09-16T06:56:26","modified_gmt":"2023-09-16T06:56:26","slug":"paying-tax-and-national-insurance","status":"publish","type":"page","link":"https:\/\/www.theukrules.co.uk\/rules\/housing\/landlords\/renting-out-a-property\/paying-tax-and-national-insurance\/","title":{"rendered":"Landlords Paying Tax on Rent and NI on Rented Properties"},"content":{"rendered":"
PAYING TAX<\/strong>: You may be liable for Income Tax and National Insurance if you are renting out your property<\/a>.<\/p>\n That means you must inform HM Revenue and Customs so you can pay Income Tax on any profit made. Failing to do so could result in a penalty.<\/p>\n <\/p>\n <\/p>\n If so, and your profits are more than \u00a36,725 per year, you will need to pay Class 2 National Insurance<\/a>. If all these circumstances apply to you then you are running a property business:<\/p>\n Landlords making profits less than \u00a36,725 can choose to make voluntary Class 2 NI payments. One reason for doing so is to ensure you qualify for the full State Pension<\/a>.<\/p>\n Note<\/strong>: You only National Insurance if you are running a business. You can do some work without being part of a business operation. Examples include arranging tenancy agreements<\/a> and making repairs<\/a>.<\/p>\n <\/p>\n <\/p>\n Receiving the first \u00a31,000 of income from property rental is your tax-free ‘property allowance’. But, the rules on tax and NI change if you get income between \u00a31,000 and \u00a32,500 a year from renting out your property.<\/p>\n If so, you must contact HM Revenue and Customs<\/a>. But, you must report it on a Self Assessment tax return if you get income:<\/p>\n Note<\/strong>: You will need to register before 5th October following the tax year you had rental income if you do not usually send in a tax return.<\/p>\n <\/p>\n The best way to declare unpaid tax is by informing HMRC about your rental income from any previous years. You may have to pay a penalty but it is lower than if HMRC discover the undeclared income themselves.<\/p>\n HMRC give you a disclosure reference number. The system grants you 3 months to calculate what tax you owe and pay it. Read the Let Property Campaign<\/a> for further details.<\/p>\n <\/p>\n <\/p>\n Landlords should count rental income from a property owned by a company the same way as any other business income.<\/p>\n <\/p>\n You can reduce income tax by claiming for costs in the normal way. But, there are different tax rules for:<\/p>\n <\/p>\n Renting out a commercial property means you can claim plant and machinery capital allowances<\/a> on some items (e.g. a garage, shop, or lock-up).<\/p>\n <\/p>\n You or your company are liable for tax on profit made from renting out the property. But, this will be after any deductions for ‘allowable expenses<\/a>‘.<\/p>\n Allowable expenses means things you need in the day-to-day running of the property. Examples of payments for expenses include:<\/p>\n Note<\/strong>: Allowable expenses do not include ‘capital expenditure’. That means buying the property or renovating it beyond normal repairs for wear and tear do not count.<\/p>\n You can usually claim tax relief on money paid for the ‘replacement of domestic items relief<\/strong>‘. Typical domestic items include:<\/p>\n Each domestic item must be for use by tenants living in a residential property. The replaced item must not get used any longer in that property. You can claim replacement of domestic items relief from:<\/p>\n <\/p>\n In some cases you can claim ‘wear and tear allowance<\/a>‘:<\/p>\n <\/p>\n As a rule, you can claim for these items for furnished holiday homes:<\/p>\n Note<\/strong>: You can only claim for these reliefs if all these conditions apply to you:<\/p>\n Your profits count as earnings for pension purposes if you own the property personally.<\/p>\n <\/p>\n <\/p>\n You will need to work out the net profit (or loss) for all your property lettings as for a single business. The exception would be for furnished holiday lettings. Follow these steps to calculate your profit:<\/p>\n Calculate profit or loss from furnished holiday lettings separate from any other rental business. That ensures you only claim these tax advantages for eligible properties.<\/p>\n
\nDo You Run a Property Business?<\/h2>\n
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\nIncome from Property You Own Personally<\/h2>\n
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How to Declare Unpaid Tax<\/h3>\n
\nIncome from Property Owned by a Company<\/h2>\n
Costs You Can Claim<\/h3>\n
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Commercial Properties<\/h4>\n
Residential Properties<\/h4>\n
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Furnished Residential Lettings<\/h4>\n
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Furnished Holiday Lettings<\/h4>\n
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\nHow to Calculate Your Profit<\/h2>\n
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