If you've got a spare room in your home, or even an entire property you're not living in, letting it out could be a great move. In fact, more and more people are doing just that each year. The amount of private rentals in the UK has more than doubled since 2004, bringing it up to 4.5 million. Crunching the numbers there, this actually means that 1 in 5 UK households is being privately rented. What's more, it'll probably hit 1 in 4 in the next few years.

Here's the thing, though. You might think of what you're doing as helping a friend out temporarily, and accepting a little cash for your trouble. Alternatively, maybe you're going the AirBnB route and putting that spare room to work. The taxman's term for this is “being a professional landlord”, though. That means you're running a business and HMRC will want its slice of your pie.

There are several different kinds of private rental agreements, and they've each got specific rules to follow. In general, though, the tax all comes to the income you're receiving and the expenses you're paying out. Like other types of business, HMRC's only interested in the profit you're making. Whatever kind of landlord you are, there are lots of essential costs that come with the territory.

Examples include:

•    Utility bills and Council Tax.
•    Accountant and letting agent fees.
•    Contents insurance.
•    Costs of services (gardening, cleaning, etc.).

If you're using the government's Rent a Room scheme, you can simplify things quite a bit. Under the scheme, you can earn up to £7,500 a year without paying any tax on it. However, if you opt into Rent a Room, you won't be able to claim expenses against your rental profits. Check with RIFT to see if the scheme makes good sense for you.

One expense to be careful of is the interest on mortgage payments for the property you're letting out. If you've got a buy-to-let mortgage, you used to be able to claim those entire payments against your profits. However, the rules about this are changing in stages over the next 4-years. Once all the dust settles in 2021, you'll only be able to claim a basic 20% deduction on mortgage interest payments. Between now and then, though, the limits will be phased in over time:

•    2017-18: you claim 75% of your mortgage interest against profits, and the rest at 20%.
•    2018-19, you claim 50% of your mortgage interest against profits, and the rest at 20%.
•    2019-20, you claim 25% of your mortgage interest against profits, and the rest at 20%.

As with all tax rules, there are fiddly little exceptions and catches. That's why it's so important to get solid, professional advice before diving into a private rental agreement.

As for actually paying the tax you'll owe, the chances are you'll be using the Self Assessment system. That means registering for an online account and filing yearly tax returns. Self Assessment can be pretty daunting if you're not used to it. There are plenty of ways to trip up and the penalties for mistakes or delays can be harsh. Even if you avoid the major pitfalls, it's still very easy to end up paying too much tax through the scheme.

As always, RIFT is on-hand to guide you through the system and help you keep more of your money in your pocket. Take a look at our Tax Return Quote Engine to check if you need to register to do a tax return. If you do, we'll get you signed up and start tackling the taxman for you. Or if you think you're owed cash back, use our tax refund calculator for an instant estimate of how much your tax rebate could be worth.