What counts as rental income?

The basic rule

Rental income includes any payment a tenant makes to you in connection with using the property. Rent is the obvious one, but the rules sweep up several less obvious items.

What you must declare

• Rent — gross of any letting agent commission
• Service charges and ground rent you collect from tenants
• Deposits you retain at the end of a tenancy (e.g. for damage or cleaning)
• Tenant payments for utilities if you bill them
• Insurance pay-outs that compensate for lost rent
• Premiums on short leases (special rules apply for leases under 50 years)

What is not rental income

• Original deposits while held in a tenancy deposit scheme — they belong to the tenant unless you keep some at end of tenancy
• Sale proceeds when you sell the property (that is a capital gain, not income)
• Insurance pay-outs for capital damage to the building (which reduce your CGT base cost instead)

Cash basis vs accrual

Most individual landlords with rental income up to £150,000 use the cash basis: you report rent when you receive it. Above that, or if you elect, you use the accrual basis where you report rent when it is due.

The cash basis is simpler and is the default for most landlords from 2017/18 onwards.

Summary

• Declare rent gross, before agent fees
• Retained deposits count as income when retained
• Tenant payments for services or utilities are income
• Cash basis is the default for most landlords