How Is Rental Income Taxed in the UK?
Understanding how HMRC taxes your rental income is critical if you’re letting out property in the UK. The amount of Tax on rental income you pay depends not just on the rental income itself, but on your total income, including any earnings from employment, self-employment, pensions, or dividends.
In the UK, Tax on rental income is under the Income Tax system — meaning it is subject to the same tax bands and rates as any other income. However, there are special considerations for landlords, such as allowable deductions, which can significantly reduce your taxable profits.
Let’s break down the current rules for the 2025/26 tax year.
Income Tax Bands and Rates (2025/26)
| Band | Taxable Income (£) | Tax Rate |
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
How Rental Income Fits Into These Bands
Your Tax on rental income is added to any other sources of income to determine your total tax liability. For example:
- If you earn £30,000 from employment and £10,000 in rental profit, your total income is £40,000.
- After your personal allowance (£12,570), you’ll pay 20% tax on the remaining £27,430.
If rental profits push your income above £50,270, a portion will be taxed at 40%, and so on.
What If You Have No Other Income?
If your only income is rental profit:
- The first £12,570 is tax-free (personal allowance)
- The next £37,700 (to reach £50,270) is taxed at 20%
- Income above £50,270 is taxed at 40%, and above £125,140 at 45%
This is important for retired landlords or those living off property income only — they may benefit from paying lower tax rates overall.
Non-Resident Landlords
Even if you live abroad, you are still liable to pay UK tax on your UK rental income. You may need to register with the Non-Resident Landlord Scheme, and your letting agent or tenant might be legally required to deduct basic rate tax before paying you rent.
The Taxcom can assist non-resident landlords with registration, declaration, and full tax compliance to avoid overpayment or penalties.
What Expenses Can Landlords Deduct from Rental Income?
When calculating how much Tax on rental income you owe, it’s essential to remember: you are only taxed on your profits, not the gross rent received. That means you can deduct certain allowable expenses from your rental income to reduce your taxable amount.
Understanding what you can and cannot claim is crucial for staying compliant with HMRC while minimising your tax bill. At The Taxcom, we advise landlords daily on how to legally optimise deductions and ensure accurate record-keeping.
Common Allowable Expenses
Here’s a breakdown of the most common expenses that can be deducted from rental income:
| Expense Type | Explanation |
| Letting agent fees | Including management fees, tenant-finding services, and inventory preparation |
| Maintenance and repairs | Necessary upkeep of the property (e.g. boiler repairs, roof maintenance) |
| Buildings and contents insurance | Landlord insurance policies to cover property damage or liability |
| Council tax and utility bills | If the landlord pays these instead of the tenant |
| Ground rent and service charges | For leasehold properties |
| Legal and professional fees | For accountancy services, eviction processes, or tenancy agreements |
| Travel expenses | If you use your vehicle for managing or inspecting the property |
| Advertising costs | For listing the property and attracting tenants |
| Wages for staff | If you employ someone to manage or maintain the property |
| Stationery and phone calls | For business-related administrative expenses |
All expenses must be wholly and exclusively for the purpose of renting out the property to be deductible.
Capital vs Revenue Expenditure
Not all costs are immediately deductible.
- Revenue expenses: Ongoing costs like repairs, insurance, and management fees. These are deductible in the year they’re incurred.
- Capital expenses: Improvements that increase the property’s value. These are not deductible from rental profits, but may reduce Capital Gains Tax (CGT) when you sell.
Understanding the difference is vital to avoid HMRC penalties or inflated Tax on rental income. The Taxcom can help clarify borderline cases and ensure expenses are classified correctly.
Mortgage Interest and Finance Costs
Since the phased removal of full mortgage interest relief (which ended in April 2020), landlords can no longer deduct their entire mortgage interest as an expense. Instead, you now receive a 20% basic rate tax credit on finance costs.
Eligible finance costs include:
- Mortgage interest on buy-to-let properties
- Interest on loans used to buy furnishings
- Fees associated with property finance arrangements
The restriction applies only to individual landlords, not to limited companies (who can still claim full interest as a business expense).
What Records Should You Keep?
You must retain full records of:
- Invoices and receipts
- Tenancy agreements
- Bank statements and rent schedules
- Proof of payments for services and maintenance
- Vehicle mileage logs
How to Report and Pay Tax on Rental Income
If you earn income from letting out property in the UK, you’re legally required to declare it to HMRC and pay Tax on rental income on your profits. The process is done via the Self Assessment tax return system, and even first-time landlords must follow this procedure if their taxable income exceeds certain thresholds.
Failing to report Tax on rental income correctly can lead to penalties, interest charges, or investigations, so it’s crucial to understand the process step-by-step.
At The Taxcom, we help landlords across the UK complete and submit accurate returns while ensuring they only pay what they legally owe.
Do I Need to Register for Self Assessment?
You must register if:
- Your rental income is over £1,000 in a tax year Your rental profits are above your personal allowance
- You are a non-resident landlord with UK rental income
- You own multiple properties or have complex tax affairs
If your income is modest , you may be able to benefit from the Property Allowance, which lets you earn up to £1,000 tax-free without needing to register.
How to Register
If you are new to Self Assessment, you must:
- Register with HMRC via their online portal
- Receive your Unique Taxpayer Reference (UTR) by post
- Activate your account with a Government Gateway login
You must register by 5 October following the end of the tax year in which you started receiving rental income.
Completing Your Tax Return (SA100 and SA105)
Each year, you will need to file a Self Assessment tax return (SA100) and include a supplementary Property Income page (SA105).
You must declare:
- Total rental income received
- Allowable expenses
- Net profit (or loss)
- Mortgage interest tax credit
If you have more than one property, you can usually combine them in the same form.
Deadlines for Filing and Paying Tax on rental income
| Deadline | Action Required |
| 5 October 2025 | Register for Self Assessment if you’re a new landlord |
| 31 October 2025 | Deadline for paper tax return submission |
| 31 January 2026 | Deadline for online submission of tax return |
| 31 January 2026 | Payment deadline for any tax owed for 2024/25 |
| 31 July 2026 (if applicable) | Second payment on account due (for those with higher tax bills) |
Late filing or payment may result in penalties starting from £100, with daily penalties and interest for prolonged delays.
Payment on Account
If your tax liability exceeds £1,000 and less than 80% of your tax is collected at source (e.g. through PAYE), you may be required to make ‘payments on account’ — advance payments towards your next tax year.
This means:
- 50% of your current year’s bill is due by 31 January
- Another 50% is due by 31 July
- Any balance is settled the following January
This system often catches landlords off guard, so it’s important to budget in advance or speak with a tax advisor to manage cash flow.
How Limited Companies Pay Tax on Rental Income
Many landlords in the UK are now choosing to own property through limited companies rather than in their personal names, especially since the reduction in mortgage interest relief for individual landlords. This shift has important tax implications, as the way Tax on rental income is imposed in a company is significantly different from how it’s taxed for individuals.
In this section, we’ll explore the key differences, tax rates, advantages, and potential drawbacks of using a limited company to manage rental income.
Corporation Tax on Rental Income
When you own rental property through a limited company, any profits are subject to Corporation Tax not Income Tax.
As of the 2025/26 tax year:
- Corporation Tax is 25% for companies with profits over £250,000
- For profits under £50,000, the rate is 19%
- Companies with profits between £50,000 and £250,000 are taxed at a tapered rate
This is often lower than the 40% or 45% income tax rates paid by higher-earning individuals.
Allowable Expenses for Companies
Just like individuals, limited companies can deduct:
- Letting agent and legal fees
- Repairs and maintenance
- Mortgage interest
- Insurance, utilities, and service charges
- Salaries paid to directors or employees
Unlike individual landlords, companies can still claim 100% of mortgage interest as a business expense, making incorporation highly attractive for landlords with large mortgages.
How to Reduce Tax on Rental Income Legally
While paying tax on rental income is a legal obligation, landlords are entitled to use legitimate strategies to reduce their tax liability — provided they stay within the rules set out by HMRC.
At The Taxcom, we specialise in helping landlords identify tax reliefs on Tax on rental income, optimise their business structures, and use every allowable deduction to lower their overall bill. Below are some of the most effective and legally sound ways to reduce the amount of Tax on rental income in the UK.
1. Claim All Allowable Expenses
The most basic — and often underused — method of reducing Tax on rental income is to claim every allowable expense. Ensure you record and deduct:
- Repairs and maintenance costs
- Letting agency fees
- Insurance, utilities, and council tax
- Legal, accounting, and advertising fees
- Travel and mileage for property visits
You must ensure expenses are wholly and exclusively for the rental business personal use or capital improvements aren’t deductible.
2. Use the Property Income Allowance
If your gross rental income is £1,000 or less in a tax year, you may not need to register for Self Assessment at all. This is covered by the Property Income Allowance.
Even if your income exceeds £1,000, you can choose to deduct the £1,000 allowance instead of actual expenses, which may be simpler if you have minimal costs.
3. Joint Ownership with a Spouse or Partner
If you’re married or in a civil partnership, owning property jointly allows you to share rental income between both individuals. This is particularly useful if:
- One person is a basic rate taxpayer, and the other is a higher-rate taxpayer
- The lower earner can use more of their personal allowance or stay within the 20% tax bracket
With proper legal documentation, you may be able to allocate income in a more tax-efficient ratio.
4. Consider Incorporation for Larger Portfolios
As mentioned in the previous section, transferring properties to a limited company may be advantageous if:
- You own multiple properties
- You want to reinvest profits
- You’re impacted by mortgage interest restrictions
However, incorporation has set up costs, additional taxes (e.g. CGT and SDLT), and must be carefully managed with professional advice.
5. Offset Losses from Previous Years
If you made a loss on rental income in previous tax years, you may be able to carry those losses forward to offset against future profits.
This can reduce the amount of tax you owe in profitable years. Losses are automatically applied by HMRC when you submit your Self Assessment return, but must be properly recorded.
6. Use Capital Allowances for Furnished Holiday Lets (FHLs)
If you let a property as a Furnished Holiday Let and meet specific conditions, you may be able to claim capital allowances on:
- Furniture and white goods
- Fixtures and fittings
- Equipment used in the property
This allows you to deduct depreciation in value from your profits, reducing tax further.
7. Time Rental Income and Expenses Wisely
The UK tax year runs from 6 April to 5 April. Timing income or deductible expenses strategically within a tax year can have significant tax implications.
Examples:
- Postponing non-essential repairs until the following tax year if you’re nearing a higher bracket
- Accelerating deductible costs before year-end to reduce taxable income
Common Mistakes Landlords Make When Taxing Rental Income
Even experienced landlords can make costly mistakes when it comes to handling rental income tax. With HMRC stepping up its compliance efforts, especially on undeclared property income, it’s essential to avoid common pitfalls that can result in unexpected tax bills, penalties, or investigations.
At The Taxcom, we regularly assist landlords in correcting past errors and ensuring full compliance going forward. Below are the most frequent mistakes we encounter — and how to avoid them.
1. Failing to Register with HMRC on Time
Many first-time landlords are unaware that rental income must be reported, especially if they assume it falls below the threshold or if they live abroad. If your total property income exceeds £1,000 a year, you likely need to register for Self Assessment.
Solution: Register with HMRC by 5 October following the end of the tax year when you started letting. Use the Property Income Allowance if your income is under £1,000.
2. Not Declaring Tax on rental income from All Properties
Each rental property — whether residential, commercial, or holiday let, must be included in your Self Assessment return, unless you’re operating under the Rent a Room Scheme or another specific exemption.
Solution: Keep a central record of all your property-related income and expenses. Use a property accountant to ensure nothing is missed.
3. Claiming Ineligible Expenses
While landlords are entitled to deduct genuine costs, not all expenses are allowable. Commonly disallowed claims include:
- Capital improvements
- Personal phone or travel use
- Mortgage repayments
Solution: Differentiate between capital expenditure and revenue expenditure, and consult a specialist if you’re unsure.
4. Misunderstanding Mortgage Interest Relief
Since 2020, individual landlords can no longer deduct full mortgage interest from rental income. Instead, a 20% tax credit applies. Many landlords still operate under old assumptions, leading to overclaimed deductions.
Solution: Use the correct calculation based on HMRC’s current mortgage interest rules, or speak with a qualified tax advisor.
5. Incorrect Income Splits on Jointly Owned Property
HMRC assumes a 50/50 income split for properties owned jointly by married couples or civil partners, unless a Form 17 is filed with supporting legal documentation.
Solution: If you want to change the default 50/50 split for tax efficiency, submit Form 17 with evidence of beneficial ownership (e.g. a deed of trust).
6. Poor Record-Keeping
One of the simplest but most damaging mistakes is failing to keep proper documentation. Incomplete or disorganised records make it harder to claim deductions — and harder to defend yourself if HMRC audits you.
Solution: Maintain digital and paper records for at least five years. Use accounting software or a property income spreadsheet.
7. Ignoring Deadlines and Late Filing Penalties
Missing the 31 January online filing deadline or payment deadlines can trigger instant penalties, starting at £100 — increasing the longer the delay continues.
Solution: Set calendar reminders, or better yet, work with an accountant who tracks your deadlines and files on your behalf.
Frequently Asked Questions (FAQs)
1. Do I have to pay tax on rental income in the UK?
Yes. If you receive income from renting out property in the UK, it is generally taxable. This applies whether you’re a UK resident or a non-resident landlord. You must declare this income to HMRC, even if you make little or no profit.
2. How is rental income taxed?
Tax on rental income is taxed as part of your overall income through Income Tax. After deducting allowable expenses, the net profit is added to your other income for the year. You are then taxed based on your applicable tax band.
3. What expenses can I deduct from my rental income?
You can deduct allowable expenses, including:
- Letting agent fees
- Landlord insurance
- Property maintenance and repairs (not improvements)
- Utility bills
- Council tax
- Mortgage interest
Capital improvements are not deductible but may reduce your Capital Gains Tax if you sell the property later.
4. How do I report rental income to HMRC?
You must declare your rental income through a Self Assessment tax return. If your rental income exceeds £1,000 in a tax year, registration with HMRC is mandatory. The deadline to register is 5 October following the end of the tax year.
5. What if I live abroad, do I still pay tax on rental income in the UK?
Yes. Non-resident landlords are still liable to pay UK tax on income earned from UK properties. You may be subject to the Non-Resident Landlord (NRL) Scheme, under which letting agents deduct basic rate tax from your rental income before passing it on to you.
6. Do I need to pay National Insurance on rental income?
Usually, no. Rental income is not subject to National Insurance unless you are running a property business. In that case, Class 2 National Insurance may apply.
Can The Taxcom help with rental income tax issues?
Yes. Our team works with landlords and property owners across the UK and abroad to:
- Structure ownership for tax efficiency
- Advise on HMRC compliance
- Represent clients in investigations or disclosures
- Collaborate with tax accountants on complex matters
Whether you’re a first-time landlord or managing a property portfolio, The Taxcom can provide the legal clarity you need to stay compliant and protected.