What is additional income?
- Holiday homes
- Bed-and-breakfast establishments eg: Air BnB
- Guesthouses
- Sub-renting part of your house e.g. a room or a garden flat
How is tax calculated on rental income?
The rental income you get should be added to any other taxable income you may have.
Any amount paid to you in addition to the monthly rental is also subject to income tax. These additional amounts or lease premiums are usually paid in the form of lump sums at the start of the lease and the full amount is subject to tax in the year that it accrues or is received.
A refundable deposit paid by a tenant is not taxable provided it is kept separately in a trust account and is not used by you but if it is forfeited by the tenant then it’s taxable. Once it is used or is able to be used as “your money”, this additional income becomes taxable
But what about all the expenses I pay for the property?
Yes, the taxable amount (rental income) may be reduced as you may incur expenses during the period that the property was let. Only expenses incurred in the production of that rental income can be claimed. Any capital and/or private expenses won’t be allowed as a deduction.
Additional income is any income that is earned ‘over and above’ your normal income.
Which expenses are allowed?
Expenses that may be deducted from taxable income include:
- Rates and taxes
- Bond interest
- Advertisements
- Agency fees of estate agents
- Insurance (only homeowners not household contents)
- Garden services
- Repairs in respect of the area let and
- Security and property levies
Which expenses are not allowed?
Improvements:
- Maintenance and repairs should be noted as specific costs and should not be confused with improvement costs. The latter is a capital expense that would be included in the base cost of the property, to effectively reduce the capital gain (or loss) on the disposal of the property, for capital gains tax purposes.
Bond – capital portion:
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- Although the interest on the bond can be claimed, the capital portion cannot be claimed.
When it comes to VAT expense claims, the supply of a “dwelling” is an exempt supply for VAT purposes, and you can’t deduct VAT incurred on its expenses. See this article for more specific information on VAT