As an individual property investor, you need to declare tax to HMRC based on net rental profits of all your UK properties; Annual net rental profits are calculated by deducting allowable expenses in a tax year from 6th April of each year to 5th April of the following year. The filing deadline is 31 January (approx. 10 months) following the end of each tax year.
Rental income including
the rent you receive
any payment you get from your tenant for the use of furniture as well as charges for additional services you provide, such as cleaning, hot water, heating, and repairs to the property.
Allowable expenses
The expenses must be wholly and exclusively for the purposes of renting out the property，including the day-to-day running costs of the property, rather than capital expenses.
Common types of allowable expenses
general maintenance and repairs to the property, but not improvements water rates, council tax, gas and electricity
insurance
interest on a mortgage to buy the property
costs of services, including the wages of gardeners and cleaners
letting agent fees and management fees
legal fees for lets of a year or less, or for renewing a lease for less than 50 years
accountant’s fees
rents (if you’re sub-letting), ground rents and service charges
direct costs such as phone calls, stationery and advertising for new tenants
vehicle running costs (only the proportion used for your rental business)
Mortgage
Only the interest of mortgage payment can be treated as an expense. If you have a repayment mortgage, the capital repayment part of any payments is not an allowable deduction.
The amount of Income Tax relief some landlords can get on residential property finance costs will start to be restricted to the basic rate of tax from 6 April 2017. This will not affect 20% tax payers but affect 40% or higher taxpayers.
Increasing a mortgage
If you increase your mortgage loan on your buy-to-let property, you can also treat interest on the additional loan as a revenue expense but only up to the capital value of the property when it was brought into your letting business. Interest on any additional borrowing above the capital value of the property when it was brought into your letting business is not tax deductible.
Capital expense
When you add something to the property that wasn’t there before or alter, improve or upgrade something that was existing, include the purchase of furnishings and equipment for the property.
Capital expenses aren’t allowable and can’t be claimed against your rental income but you should keep records of them as you might be able to set them against Capital Gains Tax if you sell the property in the future.
Examples of capital expenses that wouldn’t normally be allowable include adding an extension
installing a security system if there wasn’t one before
replacing a kitchen with one of a higher specification
Costs of maintenance and repairs
A repair restores an asset to its original condition, sometimes by replacing parts of it, is tax allowable.
Carrying out work on a property before leasing or renting
Sometimes costs of work on a property before you lease or rent it will be capital expenses, and so are not allowable expenses. Any works undertaken to put it back into a fit state for letting are unlikely to be repair works - they will be capital works as they improve the property.
Replacement of domestic items
The initial cost of purchasing domestic items for a dwelling house isn’t a deductible expense so no relief is available for these costs. Relief is only available for the replacement item.
If you let out residential property (a dwelling house) you may be able to claim a deduction for the cost of replacing domestic items such as ：
movable furniture for example beds, free-standing wardrobes
furnishings for example curtains, linens, carpets
household appliances for example televisions, fridges & freezers
kitchenware for example crockery, cutlery
The Rent a Room Scheme
A threshold of £7,500 tax-free for 2020/21 from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else. You can let out a room or an entire floor.
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