As with every means of earning income of any sort, the taxman needs to be advised of a landlord’s activity. Let us take the rent a room scheme, for example. Currently the maximum threshold for renting out that spare furnished room is £7500. If the landlord’s gross income receipts are less than this threshold, then they are exempt from tax on that income. Strangely though if the landlord makes a loss, then it could be better to pay tax in the normal way i.e. on receipts less expenses. HMRC need to be advised of this decision within a set tie limit.
If the gross income/receipts are greater than the rent a room threshold, the a choice can be made here too. Tax payable can be made on the actual profit by reporting total receipts less expenses and capital allowances. Or another method would be to pay tax on the gross receipts over the rent a room threshold i.e. the gross receipts less the £7500, or £3750 if it’s a shared ownership. On this route, the landlord cannot deduct any expenses or capital allowances. As with all tax matters, careful consideration should be made before choosing which method to adopt and a tax accountant would probably have the best answer!
Regardless of which type of tax payment a landlord uses, there is no getting around the fact the any property rented out must be in good, safe and legal state. A landord can only rent out a property owned by them. There are reams of guidance notes on the government website covering all aspects of how to rent out property and all the changes that have come in to force.