A Comprehensive Guide On Rental Income Tax

A Comprehensive Guide On Rental Income Tax

When a person plans to invest in rental property, he is ambiguous about tax on rental income and tax returns documentation. For better understanding, the ambiguity about tax on rental property income prevents investors from earning a passive income. Still, there are many ways of getting rental property tax deductions if the investor is motivated to bring home the bacon.

If you invest for the first time in rental property, you should adopt the right approach for handling tax on rental income. Though it’s complex to file an income tax return on rental property income for the first time, it becomes more convenient and easy process later on.

Let us answer all of your rental tax queries:

1- How will I know if I am entitled to pay rental income tax?

Any person who owns a property in the premises of the UK should pay tax to HMRC. Internal Revenue Service of Govt. of the UK has defined the set rules for landlords regarding the rental property to pay tax on rental income.

2- What is the procedure of paying tax on rental income?

Rental income tax is also paid when you file your annual return. You need to mention your rental income in your income tax return. If your tenets are paying you advance rent for the next year, it needs to be filed in the same year’s income tax return. There is only one exception in this case, which is a security deposit; you don’t have to mention a security deposit in your income tax return as it is non-taxable.

3- How HMRC taxes my rental income?

A landlord is charged the tax amount based on the annual income that you get from a rented property. Even though rental income is a passive form of income, the tax rules are quite similar to the regular income of a person. For your information, you might be eligible to apply or request for getting numerous tax benefits if you are paying rental income tax because it comes under the umbrella of Qualified Business Income (QBI).

4- Which type of property is categorized as a rental property?

IRS (Internal Revenue Service) has categorized properties into three categories to distinguish between a rental property and residential property.  The rental income tax is only applicable to rental properties.

✓ Tax-free Rental

If you have a property, but you rent it for only 14 days in a year, you are not obliged to pay any rental income tax. You will have to live in the estate for almost fifteen days in a year to exempt from rental tax.

✓ Personal Residence

There isn’t any obligation for rental tax on personal residence, but the IRS has set conditions to classify a property as a personal residence. IRS (Internal Revenue Service) will consider property as your personal residence only if it’s in your personal use for 10% days of the total rental days.

✓ Rental Property

A property rented to tenets for more than 15 days in a year is considered as Rental Property. If you own such property, then you are bound to pay the rental income tax and mention it while filing your income tax return.

5- For which deductions am I entitled on rental tax?

IRS (Internal Revenue Service) is quite lenient in rental tax payments; that’s why you will get relief against many types of expenses from the rental income tax that you use for the maintenance of your property.

Here’s a list of allowed rental tax deductions:

  • The commission paid to Property Manager
  • Costs incurred of advertisement
  • Cost of occasional and regular maintenance
  • Cost or instalments of insurance policy
  • Operational Costs
  • Fees paid to a legal counsellor

Apart from these, the rules are strict for rental tax deductions, and you are not even allowed to deduct the renovation costs from your rental tax.

we hopes that your main queries related to rental tax in the UK are answered. As our suggestion, you should record your expenses when your property is rented and try to get in touch with tax experts to benefit from significant rental tax relaxations in the UK.

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