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How much tax will I pay on my rental income?

How much tax will I pay on my rental income?

Income Tax

The rental income after deducting allowable expenses is added to your income for income tax purposes before savings income and dividend income.

If you are married and you jointly own a property then the income is divided equally between you (however you actually share the income) unless you receive it in different shares and you have made an election to HMRC. Please be aware that you cannot do this retrospectively.

The amount of tax you pay will depend on your individual circumstances, the type of income which you receive and any tax reliefs which you claim.

For a taxpayer who is under 65 and has no other income or reliefs, the rates of tax on his/her rental income are as follows:

2015/16 2016/17 2017/18
Excluding Scotland
£ £ £
0% (Personal allowance 10,600 11,000 11,500
20% (Basic Rate) 31,785 32,000 33,500
40% (Higher Rate) 118,125 118,000 116,500
45% (Additional Rate) over 150,000 over 150,000 over 150,000

The personal allowance is withdrawn at the rate £1 for every £2 of income over £100,000 which gives an effective rate of 60% on income between £100,000 and £121,200 for 2015/16, £100,000 and 122,000 for 2016/17 and £100,000 and £123,000 for 2017/18.

If you have income from employment, self employment or pensions, this income uses up the personal allowance and the lower rates before the rental income. The rental income may take other income into the higher rate of tax. The higher and additional rates of tax on a dividend are different.

National Insurance

Normally, you do not pay National Insurance Contributions unless you rent out surplus accommodation in the course of your trade and the rent received is included in your trading profits.

Tax Credits

Your net rental income is treated as other income for tax credit purposes. You and your partner’s (if someone is living with you) other income are cumulated and if it is less than £300, the other income is zero or £300 is deducted from the total other income for tax credit purposes.

Child Benefit

If you or your partner have income in excess of £50,000, child benefit is withdrawn proportionally on income between £50,000 and £60,000 and in full if the income is in excess of £60,000. The excess child benefit is collected through the tax system. You can cancel the Child Benefit but we do not recommend this course in case there is a sudden fall in income for whatever reason, as Child Benefit can only be backdated for three months.

DISCLAIMER
© Thandi Nicholls Ltd 2017 All Rights Reserved - The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.

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