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Tax Paid on a rented property


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I am looking to let a property, and am interested to know how much tax you would need to pay from the rental income?

Does it just depend on your total income? or does the size of property, number of rooms etc matter?

Thanks in advance.

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HI HP2004

You pay tax on the rental profits of your property. The tax rate you pay depends on your other income, therefore, depending on other income, you are likely to pay tax at either 22% or 40% on the rental profits.

The size of the property has no impact on the tax rate you pay.

Your rental year runs from 6 April to 5 April next - so will be in line with most sources of income (if you are self-employed this can run on a different year end). You will need to report the rental income and expenditure on a self assessment tax return each year, together with any other income you have earned in the year (for example, employment income, bank interest etc).

If you are not already completing a self assessment tax return, you will need to alert H M Revenue and Customs of your rental source by 6 October following the end of the tax year (5 April) in which you first receive income - eg. If you start to receive rental income 1 March 2006 then you need to alert HMRC by 6 October 2006. But if you dont start receiving income until 1 May 2006 - then you would need to alert by 6 October 2007.

Broadly speaking, and without taking into account personal pension contributions, gift aid, qualifying loans etc, for the current year the tax bands are as follows:

Personal Allowance: - £5035 (assuming age allowance is not due)

Income £1 - £2150 - 10% tax

Income £2151 to £33300 - Basic Rate (on rental profits this is 22%)

Income over £33300 - 40%

Remember that there are different expenses that you can claim, of which mortgage interest (not the capital repayment element) can often be a large element. If the property is furnished you may also be able to claim wear and tear allowance as a deduction against your income.

If you are not confident in preparing your tax form yourself, it may be advisable that you employ an accountant to prepare your tax return for you. Should you require assistance I can offer this service to you at a competitive rate. My email is sherena.glanton@horwath.co.uk

If you have any further queries, please do ask.

Kind regards


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Ultimately your total income.

Tax advantages whilst letting the property are available which reduces your tax liabilty.

If you new to the letting business it can pay you to talk to or employ the services of a Property Tax Advisor.

They can more than save you the cost of their reasonable fee's by saving you money in the long run.

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