Is renting out property still worthwhile?

5th June 2017

If you’re looking to rent out a property it is important to consider the financial responsibilities involved. 

With recent tax changes and external costs rising, is renting out a property still worthwhile in today’s market?

For landlords letting out a property, here are some of the tax implications to be aware of.

Tax implications

Any profit made from renting out a single property is liable to tax. 

The profit you make is the amount left once rental income has been added and taken away from any expenses or allowances claimed.

There are 2 kinds of tax accountable on rental income – income tax and capital gains tax (CGT).

Income tax applies to rental income, alongside other income received during the tax year. 

The rate you pay will depend if income is above the personal allowance, which is £11,500 for 2017/18:

  • basic rate (20%) – £11,501 to £45,000 
  • higher rate (40%) – £45,001 to £150,000
  • additional rate (45%) – over £150,000. 

If you’re selling a rental home, you’ll be liable to pay CGT on any gains made. However, you may get tax relief to reduce cost if the property you’re selling is your home or a business asset.

You can check if your gains are liable for CGT with our calculator.

Mortgage interest relief

Landlords who receive tax relief for finance costs on residential properties are now restricted to the basic rate of income tax.

The change, which is being phased in gradually since April 2017, will restrict deductions from property income for finance costs, including mortgage interests, interest on loans, buying furnishings and fees incurred when repaying mortgages.

Individuals are able to claim a basic-rate reduction of up to 20% on excess finance costs on or after 6 April 2017.

Percentage of costs deducted from profits Percentage of costs available as a basic rate deduction Tax year
75% 25% 2017/18
50% 50% 2018/19
25% 75% 2019/20
0% 100% 2020/21

The above changes to mortgage interest relief will have a significant impact over the affordability/viability of owning rental property going forward.

Allowable expenses

You can deduct allowable expenses if they are solely for the purposes of renting out your property.

Allowable expenses include day-to-day running costs of the property, such as maintenance and repairs.

Contact us

If you have any further questions on income from rental property, contact us on 0117 973 3377 or email to speak to an adviser.