Financial responsibilities if you rent out a property

Money Advice Service

You might be a professional buy-to-let landlord, or you might rent out your home as an ‘accidental landlord’ because you have inherited a property, or have not sold a former property. Whatever your situation, make sure you’re aware of your financial responsibilities. We also offer links to more information on your legal responsibilities.

Watch our short video to learn more about your financial responsibilities if you rent out.

Read a transcript of this video

Inform your mortgage lender

You need to let your lender know someone other than you will be living there.

Depending on how long the arrangement is for, you might need to switch to a different mortgage.

If you’re choosing a property to rent out, read our guide on Buy-to-let property investments.

Tax implications

As a landlord you need to know your Income Tax and Capital Gains Tax liabilities.

Here we offer an overview with links out to more detailed information.

Income Tax

Rental income is added to any other relevant income you earn during the financial tax year.

For example, income from employment or possibly interest from savings – to calculate your tax liability.

You must declare this income on a Self Assessment tax return each year.

However, you might be able to claim certain expenses to offset against your rental income and reduce your tax bill.

This includes, for example, some or all of your mortgage interest payments, if you have a buy-to-let mortgage, letting agent fees and some maintenance costs.

Buy-to-let landlords can offset their mortgage interest payments and some of their costs against their income.

Higher and additional rates of tax relief on mortgage interest is being phased out and will be restricted to 20% for all landlords by April 2020.

Property income allowance

The property income allowance means property owners can earn up to £1,000 rental income tax free each.

Basic rate tax payers could save up to £200 and higher rate tax payers up to £400. If you own a property jointly, for example with your partner, you can both claim the allowance.

If your rental income is £1,000 or less, you will not have to declare or pay tax on this income.

If you earn more than £1,000 in rental income, you can deduct the allowance from your receipts. However, if you claim this, you will not be able to claim for other allowable expenses.

The property income allowance will also apply to Class 4 National insurance Contributions.

You can’t use the property allowance against income from letting a room in your own home in conjunction with rent a room relief

Capital Gains Tax

If you are selling a property that isn’t your main home – including a rental property – it’s likely you will have to pay Capital Gains Tax on any gain (profit).

You can offset expenses of a capital nature such as replacement windows against capital gains when the property is sold.

As this might be many years later it’s important to keep records and evidence of any such expenditure.

Then when you come to sell check with a financial adviser or accountant what you can claim back.

Read more about Capital Gains Tax on property on the HM Revenue & Customs website.

Register your tenants’ deposits with a Tenancy Deposit Scheme

These schemes are used to protect the tenants’ deposits.

In England and Wales you must by law put the deposits in a suitable scheme within 30 days of the date of the start of the tenancy agreement if you rent your home on an assured shorthold tenancy that started after 6 April 2007.

Read more about the Tenancy Deposit Scheme on the GOV.UK website.

Tax rules for holiday lettings

The tax rules for full-or part-time holiday lets differ from those for private renting.

Find out more about tax on holiday lets on the GOV.UK website.

You have many legal responsibilities to comply with as a landlord, including:

  • drawing up a legal tenancy agreement
  • safety of gas and electrical appliances you supply
  • fire safety of furniture and furnishings you supply
  • providing an Energy Performance Certificate for the property
  • protecting your tenants’ deposits in a government-approved scheme
  • checking your tenants have the right to rent your property if it’s in England.
Find out more about legal responsibilities as a private landlord in England and Wales on the GOV.UK website.

Rent Smart Wales

A new registration and licensing scheme has been introduced in Wales.

It aims to raise awareness of the respective rights and responsibilities of:

  • agents
  • tenants
  • landlords.

If a landlord wants to manage the property themselves, they must prove they’re ‘fit and proper’ to hold a licence.

They must then take (and pass) approved training.

Alternatively, they’ll be able to appoint a licensed agent to manage the property on their behalf.

Private landlords must register with Rent Smart Wales. They must also register their properties.

This article is provided by the Money Advice Service.

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