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Newly let!

Last year, I purchased a flat which my letting agent lets for £500 per month. After the agent has taken their 10% commission, I receive about £5,400 per annum. I’ve got an interest-only mortgage on the property, which annually costs me about £3,000. I am employed and pay tax via PAYE, and have never completed a tax return before. But one of my friends said that I need to complete a tax return now, because I need to declare this rental income and I should be paying tax on the profits too. Are they right?

If you don't already complete a tax return (and assuming you don’t meet other criteria), you will need to do so if you your income from property is higher than:

  • £10,000 before deducting allowable expenses; or
  • £2,500 after deducting allowable expenses

You don’t meet either of the above rules; however, you must still inform HM Revenue & Customs about any new sources of income or changes to your income if:

  • You pay tax through PAYE on employment/ pension income and your other taxable income changes or becomes liable to higher rate tax; or
  • You don’t pay tax through PAYE and your total taxable income is more than the personal allowance you’re entitled to

Clearly, you meet the first rule and therefore you must inform HMRC of the rental income. They will then decide if you need a tax return. As you pay your tax via PAYE, they may be able to collect any additional tax due through your tax code though, which will cut down on the administrative burden.

If you would like to discuss this further or would like someone to handle this for you, please feel free to contact your local TaxAssist Accountant.

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