How much tax will I pay on my rental income?
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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:
2013/14 2014/15 2015/16
£ £ £
0% (Personal Allowance) 9,440 10,000 10,600
20% (Basic Rate) 32,010 31,865 31,785
40% (Higher Rate) 117,990 118,135 118,125
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The personal allowance is withdrawn at the rate £1 for every £2 of income over £100,000 which gives an effective rate of 60% on income between £100,000 and £118,880 for 2013/14, £100,000 and £120,000 for 2014/15 and £100,000 and 121,200 for 2015/16.
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. If you are over 65, you may be entitled to Age Allowance but this is withdrawn at the rate of £1 for every £2 of income over £26,100 for 2013/14, £27,000 for 2014/15 and £27,700 for 2015/16.
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.
Your net rental income is treated as other income for tax credit purposes. You and your partnerís (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.
If you or your partner have income in excess of £50,000, child benefit is withdrawn proportionally on income between £50,000 and £60,000 and in full if the income is in excess of £60,000.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.
© Thandi Nicholls Ltd 2015 All Rights Reserved - The above article is provided for guidance only and may not cover your personal circumstances so you should not rely on it. 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