How To Calculate Rental Property Profits

Rental profits is calculated on an accrual basis. The accrual basis involves taking rents receivable rather than rent received and allowable expenses payable rather than expenses paid.

The taxable property income profit will therefore be:

Rent Receivables X

Less: Expenses payable (X)

Property income profit/(Loss) X/(X)

Rental property is chargeable to tax at 20%/40% and 45% depending on the level of your income from other sources. The tax rate will apply to the property income profit.

Now the question is what are the allowable expenses?

Allowable expenses

Expenses are deductible only if they are incurred ‘’wholly and exclusively’’ for the business of letting.

Here is the list of most common expenses which may be claimed if they are actually incurred:

  • Agent’s fees and commission
  • Repair expenses
  • Interest paid on a loan taken out to purchase the property
  • Water charges.
  • Council tax
  • Mortgage interest
  • Insurance premiums
  • Wear & tear allowance if the property has been let as furnished (10% of the relevant rental amount)
  • Any other allowable expenses

Property Business Losses

Where expenses exceed income, a property business loss will arise. The loss can be carried forward and set against the property income from a UK property business in future years.

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