Don’t Forget Rent’s Not the Only Buy to Let Income

Landlords might think that rent is the only income generated by their property business – but they may need to tell the taxman about other money coming in as well.

Deposits from tenants are probably the main other income from tenants – and the rule is that these deposits always belong to the tenant.

Many landlords hold a deposit as a safeguard against the tenant failing to pay rent or as cover for damages.

A landlord can only retain a deposit under certain circumstances:

• Payment for damaged items
• To settle debts attached to the property
• Failure of the tenant to carry out obligations set out in the tenancy agreement such as cleaning
• Rent arrears

Under deposit protection law, a landlord must explain to a tenant why all or part of the deposit is being kept – and the tenant and landlord can dispute the issues under an independent adjudication process.

Once this is complete and the deposit reverts to the landlord, the cash becomes income for the property business.

The money should be declared as rental income for the tax year when the landlord took over the money, not when the deposit was originally handed over at the start of the tenancy.

Many tenants fail to pay their last month’s rent because they consider the payment is covered by the deposit, which leaves many landlords at a financial disadvantage if the tenant moves out leaving repairs or cleaning.

A good tip is to not to match the deposit with rent – so for a property with a monthly rent of £750, charge a deposit that’s equivalent of six week’s rent (£750 x 12 = £9,000/52 = £173.07 x 6 =£1,038).

Other payments that might be considered income are grants or insurance settlements for claims against the property and even rent guarantee cover.

Entering these items as income should not affect landlord tax as spending on repairs or maintenance should cancel out any profit.