The main thing to bear in mind is "do my costs go up because I am renting out"? If that happens then the chances are that you can claim for the additional cost. So the two notable exceptions (when renting out a room in your own home) are your council tax and your mortgage payments. If they stay the same whether you have a lodger or not, then it's going to be hard to justify making a claim.
Taking in a lodger
The good news, if you're renting out a room in your own home, is that there is a special "rent a room" relief which allows you to make up to £4,250 per year tax free (2010/11 figures). You have the option to calculate things on a strict basis, and ignore the relief, or just claim the maximum relief you're allowed.
Renting out a second residential home
Putting yourself in a position to rent something out is not an allowable rental expense. Like qualifying as a doctor is not an allowable expense when earning private fees! If you're doing up a house, it's better to rent it first and then do the repairs and the maintenance later. Ongoing expenses of repair and maintenance are allowable.
Keep proper records. Use a separate bank account for all INs and all OUTs. A typical list of expenses (grouped by tax return category) includes:
- Rent (payable by you if you are sub-letting)
- Rates
- Insurance
- Ground rent
- Repairs
- Motor
- Travel
- Maintenance
- Renewals
- Finance charges
- Interest
- Legal
- Letting Agent
- Professional
- Services
- Wages
- Telephone
- Printing, postage, stationery
- Sundry
Not all of these may apply in your case, and you may find that you have special categories of your own if your property has a moat or a duck house! Seek professional advice if you are in doubt.
Lastly, you can claim loan interest payments (and not capital repayments) if the loan was taken out to buy the property or to improve the property. If you take out a second mortgage to fund your lifestyle, then the interest payments on the "lifestyle" loan do not relate to "lettings" and they are not allowable for tax. Many people get that wrong and end up with tax investigations. Beware!
Renting out commercial property
There are three main types of lease when renting out commercial property. The variations in the nature of these leases means that you invariably need detailed advice from a professional.
Holiday lets
Again, there are special rules about holiday lets (a quasi business) especially if the property is overseas. Whether your holiday let is in the UK or not, you should take professional advice from a specialist in this field.
http://bit.ly/bKUOaF
