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Table of contents
Table of contents ..................................................................................................................... 2
1. Overview of taxation of rental income in the United Kingdom ............................................. 4
1.1 Rental income received by an individual ..................................................................... 4
1.2 Where to obtain information from Airbnb ................................................................... 6
1.3 Expenses that can be deducted to calculate taxable rental profits ................................. 6
1.4 Capital allowances and wear and tear allowance .......................................................... 7
1.5 Pro-rata expenses and private use adjustment ............................................................ 9
1.6 Expenses that cannot be deducted............................................................................. 9
1.7 Rental losses ......................................................................................................... 10
1.8 Documentation to be retained ................................................................................. 10
1.9 Reporting rental income on a tax return ................................................................... 11
1.10 Jointly owned property .......................................................................................... 11
1.11 Jointly rented property........................................................................................... 11
1.12 Applicable tax rates ................................................................................................ 11
1.13 Sample rental computation – home owner host, rent a room relief not available ........... 12
1.14 Sample rental computation – tenant host, rent a room relief not available.................... 14
2. Taxation of capital gains in the United Kingdom .............................................................. 16
2.1 Capital Gains Tax .................................................................................................... 16
2.2 Example of Capital Gains Computation – PPR partly available ..................................... 17
3. Rent-a-room relief ........................................................................................................ 18
3.1 What is rent-a-room relief ....................................................................................... 18
3.2 The conditions required for rent-a-room relief to apply .............................................. 18
3.3 Who can claim the relief? ........................................................................................ 19
3.4 Examples of circumstances where the relief is not due ............................................... 19
3.5 Rent-a-room relief – Example where gross receipts are fully exempt (2017/18 rates) .... 20
3.6 Rent-a-room relief – Example of alternative method where gross receipts exceed the
exemption limit (2017/18 rates) .......................................................................................... 21
3.7 How is the relief granted? ....................................................................................... 23
3.8 Claiming rent-a-room relief on a tax return ............................................................... 23
3.9 Government consultation into the relief ................................................................... 23
3.10 Rent-a-room relief – Frequently Asked Questions ....................................................... 23
4. Furnished Holiday Lettings............................................................................................ 26
4.1 What is a Furnished Holiday Letting ......................................................................... 26
4.2 The conditions required for a property to qualify as a FHL ......................................... 26
4.3 Special tax treatment of Furnished Holiday Lettings .................................................. 27
4.4 Relief for finance costs ........................................................................................... 27
4.5 Relevant earnings for pension contributions ............................................................. 28
4.6 Losses of a FHL ..................................................................................................... 28
4.7 Reporting a FHL on a tax return .............................................................................. 28
4.8 Jointly owned property .......................................................................................... 28
4.9 Capital Gains Tax .................................................................................................... 28
5. Guide to preparing an annual Self-Assessment tax return ................................................ 30
5.1 The requirement to file a tax return in relation to rental income.................................. 30
5.2 Registering for Self-Assessment .............................................................................. 30
5.3 Electronic filing ...................................................................................................... 31
5.4 Payment of tax and payments on account................................................................. 31
5.5 Notification of requirement to file a UK tax return - deadlines to meet ......................... 32
5.6 Provisional tax return ............................................................................................. 33
5.7 Including additional information on the tax return ..................................................... 33
5.8 Submitting a tax return........................................................................................... 33
5.9 Payment of income tax liability ................................................................................ 34
5.10 Records to be kept ................................................................................................. 34
5.11 HMRC right to inspect records and enquiries ............................................................. 34
5.12 Application of interest and penalties ........................................................................ 35
5.13 Examples of some areas where errors may occur ...................................................... 35