Have you moved to a new home but are still paying the mortgage on your old one? Instead of selling right away, consider renting it out. Renting your former residence can provide extra income to help pay the mortgage and expenses. However, there are tax implications to be aware of. Here’s what you need to know about the income tax rules for renting out your previous home in the UK.

Taxable Rental Income

Any rent you receive from letting out your old home is considered taxable income. You must report this on your self-assessment tax return. After deducting allowable expenses associated with renting out the property, the remaining profit will be subject to income tax at your marginal rate. The tax due will be in addition to any other income tax you owe from your regular job or other sources.

Allowable Expenses

You can deduct reasonable costs for services, repairs, insurance, agent fees, and other expenses directly related to renting out your former home. Interest paid on the mortgage is also deductible, but not the principal portion. If you previously claimed mortgage interest tax relief on the property, that benefit will be phased out once you start renting it out. Capital allowances enable you to get tax relief for furnishings provided to tenants.

Impact on Capital Gains Tax

Renting out a home previously your main residence could affect how much capital gains tax you’ll pay when you sell it. The property is an investment instead of your primary residence for any rented period. This could decrease the amount of gains eligible for valuable capital gains tax relief.

Recordkeeping Requirements

Keep careful records of rental income received and expenses paid out. Retain documentation such as bank statements, invoices, receipts, and rental agreements. Accurate recordkeeping helps maximize deductions and comply with tax rules.

Renting out your former home can generate welcome extra income if managed properly for taxes. Seek advice from an accountant or tax professional to ensure you follow the latest income tax rules and claim all appropriate deductions. With the right tax planning, you can save money and make money from letting out your old residence.