Posted by Admin - 04/05/2016
Property Income tax can be paid in two ways, by paying a bill generated by HMRC following completion of your Self Assessment or payment through your PAYE tax code.
By entering your gross rental income and expenses on to your tax return, your profit or loss is then calculated.
If your gross rental income is higher than your rental expenses, you are taxed on the difference which is your rental profit.
If your rental expenses exceed your gross rental income, you have made a loss. If you have made a loss you may want to take advice from a tax adviser or contact HMRC as you may find this to be a complicated area.
If you send in your Self Assessment tax return to HMRC online, your tax bill will be calculated automatically.
Any profit from property is added to your other income from the tax year.
If you are a basic rate taxpayer, you will pay 20% Income Tax on your rental profits. National Insurance is not paid on rental profits.
The tax due is collected under Self Assessment – usually a tax bill due by 31 January each year.
Taxing rental income through your PAYE code
There is an alternative to filling in a tax return each year and paying tax under Self Assessment.
If you are an employee or a pensioner and your income is taxed under PAYE, you may be able to pay the tax due on the rent through your employment or pension tax without the need to complete a tax return.
If the rental profit (rental income less allowable expenses) is less than £2,500 a year, and the rental income (before deduction expenses) is less then £10,000 a year, you can ask HMRC to collect any tax due through your PAYE code.
You would need to send the tax office a statement of your rental income and expenses each year.
HMRC would then change your PAYE tax code to collect the additional tax from your employment or pension.
If you have income from property abroad it is treated as foreign income on the tax return, but the profit is calculated on a similar basis to property in the UK.
Your UK property income must be worked out separately from any foreign property income you may have.