Taxation of income from renting out property

The taxation of income from renting out property concerns many people who let a flat, a house, an office or other premises. The rules for this type of income differ in many respects from those for employment income or income from a conventional business, so it pays to know them before you file your tax return. Misjudging rental income is one of the common mistakes that can easily be avoided. In this article we therefore sum up what is taxed, which expenses to claim and what not to forget.

When income counts as rental income

Income counts as rental income when an individual rents out property without this being a continuous business activity carried on under a trade licence. This type of income has its own taxation rules and is reported in the tax return as a separate type of income, not as business income. Some of the advantages typical of entrepreneurs therefore do not apply to renting without a trade licence. At the same time, other rules apply, such as the option to exempt part of the income.

Exemption of part of the income

The law allows part of rental income to be exempt from tax up to a set limit. The expenses claimed must then be reduced in the same proportion as the income is exempt. Check the specific amount of this exemption for the tax period in question, as it may change. The exemption applies automatically up to the set limit, so you do not need to apply for it in any particular way. All that matters is to reflect its effect correctly in the expenses you claim in your tax return.

• Part of the rental income may be exempt from tax
• Expenses are reduced in the same proportion as the income
• Only the part of the income above the exemption limit is taxed

Which expenses to claim

When renting out property, you can claim demonstrable expenses directly related to the property being let. Whether they are deductible depends, among other things, on whether or not you have included the property in your business assets.

• Energy and services connected with the rental
• Routine repairs and maintenance of the property
• Depreciation where the property is included in business assets

Records and the tax return

Rental income and expenses need to be kept in clear records during the year and, once the year is over, stated in your tax return. Good, thorough records from the very start of the tenancy will make settling your tax later much easier and reduce the risk of mistakes.

What to watch out for

Landlords sometimes forget the mandatory reduction of expenses after applying the income exemption, or they claim expenses they are not in fact entitled to. Including a property in business assets also has consequences when it is sold later, which you need to think about in advance.

When to seek advice

If you rent out several properties at the same time or are considering including a property in your business assets, it pays to discuss the whole situation with an expert beforehand. Getting things set up correctly from the start will save you complications as well as tax paid unnecessarily. The decision whether to include a property in business assets has long-term consequences that are difficult to change retrospectively. So do not rush it, and weigh up all the circumstances, including any sale you are planning in the future.

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Frequently asked questions

Do I have to pay tax on all the income from renting out a flat?

Not necessarily. Part of the rental income can be exempt up to the statutory limit, and only the rest is taxed. However, expenses are reduced in the same proportion. Check the limit for the period in question.

Which expenses can I claim when renting out property?

Demonstrable expenses connected with the property, such as energy, services or repairs. Depreciation is possible if the property is included in business assets, but this also has further tax consequences.