As an individual renting out a property, it’s essential to understand how rental income is taxed. This guide provides an overview of the tax implications and permissible expenses.
What is Rental Income?
Rental income is the amount received from renting out a property, such as a residential home, holiday home, bed-and-breakfast establishment, or guesthouse.
How is Tax Calculated on Rental Income?
Rental income is added to any other income you may have, and then reduced by certain permissible expenses. Additional amounts, such as lease premiums, are also subject to income tax.
Permissible Expenses
You can claim the following expenses against your rental income:
- Rates and taxes
- Bond interest
- Advertisements
- Agency fees of estate agents
- Insurance (homeowner’s insurance only)
- Garden services
- Repairs (in respect of the area let)
- Security and property levies
Non-Permissible Expenses
Expenses that are capital in nature or not related to the production of rental income are not allowed. These include:
- Costs for improvements made to the property
- Capital expenses
Improvements vs. Repairs
Improvements are not allowed as a deduction against rental income, but can be included in the base cost of the property for capital gains tax purposes. Repairs and maintenance are allowed as a deduction.
VAT Implications
The letting and hiring of a dwelling is exempt from Value-Added Tax (VAT).
What if Expenses Exceed Rental Income?
If expenses exceed rental income, the loss can be set off against other income earned by the individual, provided that the loss is not “ring-fenced” in terms of prevailing anti-avoidance provisions.
We hope this guide helps you understand the tax implications of rental income. If you have any questions or concerns, please don’t hesitate to reach out to us.
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Best regards,
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Global Infinity Legal Director