Rental Income Reporting

There have been a number of changes to the reporting of rental income over the last few years and this blog covers some of the less advertised ones in more detail.

The Cash Basis?

The cash basis allows you to account for income and expenditure when money is received or paid out and not the date on which the income is earned (accruals basis). As all income and expenditure is accounted for in the period it is received/paid, you will not need to account for any debtor/creditors or prepare a balance sheet.

The profit or loss to be reported under the cash basis is calculated by taking the total amount of income received by the business during the tax year less the total expenses paid out by the business during the tax year.

The cash basis is now the default method of reporting the profits or losses of your property business if you are an individual or within a property partnership with less than £150,000 of income (cash receipts).

If you carry on your property with your spouse or civil partner you both must use the same basis for the calculation of profits, therefore you cannot use the cash basis if your spouse uses accruals basis.

The cash basis is a simpler way to report your profits on your self-assessment tax return.

£1,000 Property Allowance?

If your gross property income is less than £1,000 per annum you are not required to file an Income Tax Return, as with the property allowance, this income will be exempt. If you hold the property jointly with your spouse or civil partner you will each be entitled to a property allowance of £1,000 per annum.

You will not be eligible to use the property allowance if you have property income in excess of £1,000, receive property income from a company or partnership connected to you or your spouse/civil partner, claim the tax reduction for non-deductible costs of a dwelling loan or deduct any expenses from the income you receive letting out your property.

Rent a room relief?

Here is another great exemption from HMRC where an individual lets out furnished accommodation in their main residence i.e. letting out a room in your home.

The Rent a Room Scheme lets you earn up to £7,500 per annum tax free (£4,250 prior to the 2017/18 tax year). You must opt in to utilise the exemption via your self-assessment tax return if you earn more than the £7,500 exemption threshold.

The exemption is halved to £3,750 each if shared with another individual.

You will also be unable to use the scheme if the accommodation is any of the following: –

  • Unfurnished;
  • Not part of your main home;
  • Used as an office for a business; or,
  • Is let out while you live abroad.

Deductible expenditure?

As a reminder, below is a list of deductible expenditure that can be utilised against rental income received: –

  • letting agents’ fees
  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  • accountants’ fees
  • buildings and contents insurance
  • interest on property loans
  • maintenance and repairs to the property (but not improvements)
  • utility bills, like gas, water and electricity
  • rent, ground rent, service charges
  • Council Tax
  • services you pay for, like cleaning or gardening
  • other direct costs of letting the property, like phone calls, stationery and advertising


Blog written by Jas Sidhu

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