How Is Rental Income Taxed in the UK

Introduction

Rental income is treated as part of your total taxable income and taxed under Income Tax rules. The amount of tax you pay depends on your profit, which is your total rental income minus allowable expenses.

You must report your rental income through the Self Assessment system unless your profits are small enough to be covered by allowances. Understanding how HMRC calculates tax on rental income will help you stay compliant and make the most of available deductions.

What counts as rental income

Rental income includes any money you receive from letting out property, including:

Rent paid by tenants.

Non-refundable deposits.

Service charges paid by tenants.

Payments for using furniture, parking spaces, or shared facilities.

If you rent out a furnished property, the total rent you receive, including any furniture charges, counts as rental income.

Rental income does not include money from property sales, which are subject to Capital Gains Tax, or from short-term stays in your own home under the Rent a Room Scheme (which has its own rules).

The property allowance

You can earn up to £1,000 in rental income each tax year without paying any tax or reporting it to HMRC. This is known as the property allowance.

If your gross rental income is below £1,000, you do not need to register for Self Assessment.

If you earn more than £1,000, you can either:

Deduct the £1,000 allowance from your rental income instead of claiming expenses, or

Deduct your actual allowable expenses if that gives a better result.

You cannot claim both the property allowance and expenses in the same year for the same property.

Calculating your taxable profit

To work out how much tax you owe, calculate your net rental profit:

Rental income Allowable expenses = Taxable profit

You pay Income Tax on your profit, not on the total rent you receive.

If you own more than one rental property, HMRC allows you to combine income and expenses from all your UK properties into one figure. Losses from one property can offset profits from another.

Allowable expenses

Allowable expenses are costs that are wholly and exclusively for the purpose of letting the property. You can deduct them from your rental income to reduce your taxable profit.

Typical allowable expenses include:

Letting agent and management fees.

Repairs and maintenance (but not improvements).

Buildings and contents insurance.

Council tax, water rates, and utilities if you pay them rather than the tenant.

Accountancy and legal fees related to rental activity.

Advertising for new tenants.

Ground rent and service charges.

You can also claim for replacement domestic items such as furniture, appliances, and carpets when you replace old ones. The replacement cost, not the original purchase, is deductible.

Mortgage interest

You can no longer deduct mortgage interest directly from your rental income. Instead, you receive a 20 percent tax credit on your mortgage interest payments, which reduces your overall tax bill.

This means higher rate taxpayers now pay more tax on rental income than before, while basic rate taxpayers are unaffected.

Rental income tax rates

Rental profits are taxed at the same rates as your other income:

20 percent on profits within the basic rate band (up to £50,270 for 2024 25).

40 percent on profits within the higher rate band (£50,271 to £125,140).

45 percent on profits above £125,140.

Your rental income is added to your salary, pension, or other earnings to determine your tax band.

Example

Emma earns £40,000 from her job and £10,000 in rental profit. Her total income is £50,000. The first £10,270 of her rental profit falls within the basic rate band, so she pays 20 percent on it.

If she earned £60,000 in total, £9,730 of her rental profit would be taxed at 40 percent.

Reporting rental income

If you earn rental income above the £1,000 property allowance or make a profit, you must register for Self Assessment and complete a tax return each year.

The tax year runs from 6 April to 5 April. You must:

Register with HMRC by 5 October following the end of the tax year in which you started renting.

Submit your online tax return by 31 January after the tax year ends.

Pay any tax due by the same date.

You will need to include details of your rental income, expenses, and mortgage interest. HMRC’s online system will calculate your tax based on the information you provide.

If your rental profit is less than £2,500 and you are employed, HMRC may collect the tax through your PAYE code instead of requiring a tax return.

Record keeping

HMRC requires landlords to keep detailed records for at least five years after the Self Assessment deadline. You should retain:

Tenancy agreements.

Invoices and receipts for expenses.

Mortgage statements.

Bank statements showing rent payments.

Utility bills and insurance documents.

Good record keeping ensures accurate tax returns and provides evidence if HMRC reviews your figures.

Special cases

Rent a Room Scheme

If you rent out a furnished room in your own home, you can earn up to £7,500 per year tax free under the Rent a Room Scheme. If your income exceeds this, you can choose whether to pay tax on the profit or opt into the scheme for a simplified calculation.

Joint ownership

If you own property with a partner, the income is usually split according to your ownership shares. Married couples and civil partners can elect to split income differently by notifying HMRC using Form 17.

Overseas landlords

If you live abroad but rent out UK property, your income is still subject to UK tax. The Non-Resident Landlord Scheme may require your letting agent or tenant to deduct basic rate tax before sending you the rent. You can still file a UK tax return to claim expenses and adjust your tax liability.

Making Tax Digital for landlords

From April 2026, landlords with annual rental income over £50,000 must comply with Making Tax Digital for Income Tax (MTD ITSA). This means keeping digital records and submitting quarterly updates to HMRC instead of one annual return.

Landlords earning between £30,000 and £50,000 will join the scheme from April 2027.

Example scenario

David earns £18,000 in rental income and spends £6,000 on allowable expenses, including letting agent fees, insurance, and maintenance. His net profit is £12,000.

He adds this to his employment income of £30,000, bringing his total income to £42,000. As he is within the basic rate band, he pays 20 percent tax on the £12,000 profit, resulting in a £2,400 tax bill.

Common mistakes to avoid

Forgetting to register for Self Assessment by the deadline.

Not keeping receipts for deductible expenses.

Claiming capital improvements as repairs.

Failing to report overseas rental income.

Ignoring the mortgage interest restriction.

Conclusion

Rental income in the UK is taxable, but you only pay tax on your profits after deducting allowable expenses. By keeping accurate records, using the property allowance or Rent a Room relief where available, and submitting your Self Assessment on time, you can manage your tax efficiently and stay compliant with HMRC.

If your rental income is substantial or your tax situation is complex, consider consulting an accountant who specialises in property taxation to help you claim all available deductions and reliefs.