The UK tax system taxes -

1. •rents arising from UK property, wherever the owner is tax resident
   

2. •rental income arising anywhere in the world when owned by a UK tax resident person

If you are living outside the UK and you receive rents from a UK property then your tenant or letting agent may deduct tax from the rent received. If you are UK tax resident then you can receive your rents without deduction of tax.

For overseas landlords, your rental agent can usually arrange with the HMRC to have rents paid without deduction of tax.

If tax is deducted at source by a rental agent, you will still need to disclose the rental profits on your self assessment tax return. Tax deduction at source is not an alternative to filing a self assessment tax return.

All tax due in respect of rents will be paid under the self assessment system. See our page on Self Assessment for full details.

You will need to complete the Land and Property supplement of your self assessment tax return.

If you make a loss on your rents, you can carry the loss forward to subsequent years and set it against future rental profits. If you have more than one property the loss on one property will be aggregated with any profit in the other in the same year.

There are special rules for furnished holiday lettings and these have changed in recent years. Please contact us for details.

From gross rents received you can deduct certain expenses to arrive at a net profit. This net profit is then charged to tax. The rules for calculating the allowable expenses are complex but generally, the net profit is taxed as if it were a business. A summary of the allowable expenses is shown below.

1. •Business rates, Council Tax, water rates, ground rates and insurance
   

1. •Repairs that prevent the property from deteriorating
   
   

2. •Finance charges including mortgage interest
   
   

3. •Management fees relating to the ongoing costs of letting
   
   

4. •Professional fees in drawing up accounts
   
   

5. •The cost of providing services e.g. gardening or cleaning
   
   

6. •Any expenses incurred wholly and exclusively for the purpose of your rental business e.g. advertising for tenants, stationery and telephone calls.
   

After April 2020 landlords can no longer deduct all finance costs from their property income to arrive at the taxable profit. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Prior to April 6, 2020 the following calculation of relief applied -

1. •2017/18 - the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
   

1. •2018/19 - 50% finance costs deduction and 50% given as a basic rate tax reduction
   

1. •2019/20 - 25% finance costs deduction and 75% given as a basic rate tax reduction
   

Revenue & Customs have devised a special scheme for people who let a room in their home. It is called the Rent a Room Scheme.

Under this scheme you will not be taxed on your first £7,500 of gross income (that is income including any sums you may receive for providing services) from letting furnished accommodation in your only or main home.

There are various rules relating to the Rent a Room Scheme and you should seek professional advice to determine whether you qualify.

HMRC have targeted property owners who have not declared the correct tax by offering a tax 'amnesty' campaign aimed at undeclared rental income. Taxpayers can come forward at any point with a disclosure of their undeclared income from rented properties.

HMRC are looking at landlords who own properties and let them on a variety of different basis including long-term letting, holiday lets, student lets and workforce lets. They have a wealth of intelligence information to identify landlords who have either not declared any rents or are not declaring all rents received.  This can be from a number of sources including computerised records from other government agencies and local authorities, freely available information from the internet and information gathered from HMRC surveillance or tip-offs from the public. 

Lower penalties can be negotiated for those who come forward as part of the campaign.  Those who do not come forward can expect higher levels of penalties should HMRC later catch up with them and in certain cases criminal prosecutions can also occur.

HMRC's own estimate is that 1.5 million landlords underpay tax totalling £500m every year.

https://www.gov.uk/government/publications/let-property-campaign-your-guide-to-making-a-disclosure