How to Calculate Rental Income Wondering whether or not you can expense the new counter-tops you had installed in your rental home or the cup of coffee you bought for your tenant? This guide lists common allowable expenses and will help you calculate your rental income.
How to Calculate Net Rental Profit on Your Property Lettings
To determine the net profit or loss of your rental properties:
Add together your rental income from ALL of your properties.*
Add together your allowable expenses from ALL of your properties*
Subtract your allowable expenses from your rental income.
*Note: rental income on foreign property needs to be declared separately as foreign income.
You should also know:
You’re allowed to deduct expenses on one property against the receipts on another. You must pay tax on any profit.
You have to apply for a Class 2 National Insurance if being a landlord is your main job, you rent out multiple properties, and your profits are over £5,965 per year.
How to Calculate Rental Income
Your rental income consists of the rent you receive from your tenants plus any funds you receive for covering various service charges.
Depending on the tenancy agreement, your rental income could include:
Rent for the letting of your property (e.g. houses, flats, apartments, office space, etc.).
Permits associated with your property (e.g. parking permits, sporting rights, etc.).
Fixed service charges (e.g. fees for maintaining communal areas, utility charges, etc.).
Variable service charges (e.g. arranging property repairs).
‘Sinking’ funds (e.g. slush fund for emergencies, unexpected structural maintenance, etc.).
Easements allowing your tenant to use your property in a specific way.
Sums received for the use of furniture, furnishings, etc.
Reverse premiums and deemed premiums.
If you are paid for any services that a landlord does NOT normally provide (e.g. regular laundry services, house cleaning, meals, etc.), this income should be treated separately, as trading income instead of rental income.
Note: you’ll need to consult your tenant if your service charges require your tenant to pay more than £250 for planned work or £100 per year for ongoing work (lasting more than 12 months).
How to Determine Allowable Expenses
You can offset some of your rental property’s costs by claiming any expenses you incur wholly and exclusively for your rental property.
Alternatively, if you incur an expense that is only partially for your rental property, but you are able to calculate a definite proportion used wholly and exclusively for your property business, you are able to deduct that proportion. For more information, see the HMRC’s Business Income Manual.
Quick reference table for allowable expenses:
|Can be claimed||Cannot be claimed|
|Home maintenance costs||Home improvement costs|
|Interest on mortgage and loans used to repair the property||Full cost of mortgage or loans used to repair the property|
|Management fees paid to a letting agent, rent collector, etc.||Management fees paid to you (the landlord) for your labour|
|Misc. household costs (e.g. advertising)||Misc. personal costs (e.g. clothing)|
|Ground rent||Capital expenditures|
|Service charges (including utility bills)|
|Vehicle running costs|
|Insurance (including Landlord Insurance)|
Additionally, you may be able to claim:
Capital Allowances –You can claim capital allowances on furnished holiday homes and commercial properties, provided you meet certain requirements.
Wear and Tear Allowance – If your residential letting is furnished, you can claim 10% of the net rent as a “wear and tear allowance.” Net rent is the total rent received less costs a tenant usually pays (e.g. Council Tax) have been deducted.
Need Financial Advice?
If you need financial advice, including help assessing your rental income, Towergate Financial is here to help you. Contact us today.