If you make an income from renting a property (or properties) you own, you may have to pay
income tax. An
Investment Property Section of this website will be published soon. This will cover income from property in more detail, and explain
allowable expenses and
tax credits from
finance costs.
- If you are renting out a property or properties you own:
- The first £1,000 of income is tax free (this is known as your property allowance). This only applies if you do not deduct allowable expenses or gain tax credits from finance costs.
- You will pay tax on anything above £1,000, based on the rate of tax you pay on your military salary. For example, If you earn £60,000 from the military, and £2,000 a year from property, you would be taxed 40% on the £1,000 from your property income (£2,000 minus the £1,000 property allowance), because you are a higher rate taxpayer.
- It can get a little trickier if the property income pushes you into a higher rate. For example, if you are based in Scotland and your salary is £43,662, you are an intermediate rate taxpayer. If you earn £2,000 from property, the £1,000 above the allowance will be taxed at the higher rate of 42%, as it has pushed you into the higher rate bracket for that part of your income.
- If you choose to apply allowable expenses and tax credits from finance costs, you will:
- Pay tax on the profits. The profits are your income from the property minus the allowable expenses. You'll add the profits to your other income to calculate the rate of the tax you will pay.
- For finance costs, you receive a 20% tax credit of those costs - this essentially reduces your tax bill by 20%.
- To pay any tax owed:
- If your income from property is more than £1,000, but less than £2,500, contact HMRC.
- You must complete a Self Assessment tax return if your income from property is £2,500 to £9,999 after allowable expenses, or £10,000 or more before allowable expenses.
- If you a renting a room or part of a property you own and live in, you can use the rent a room scheme.
- The rent a room scheme allows you to earn up to £7,500 tax free (or £3,750 each if you split the income with your partner). This only applies if you do not deduct allowable expenses and capital allowances.
- If you choose to apply allowable expenses and capital allowances, you will pay tax on the profits. The profits are your income from the property minus the allowable expenses and capital allowances. You'll add the profits to your other income to calculate the rate of tax you will pay.
- The full details of this scheme can be found on the gov.uk website.
- To pay any tax owed, you must complete a Self Assessment tax return.
