Tax On Rental Income: Everything You Need To Know

When you rent out a property to tenants, the income you earn is taxable, just like any other earnings. If you own and rent out multiple properties, their rental income is combined to determine your total taxable income. Of course, there are allowances and tax reliefs for landlords that you can access to reduce your tax obligations. This guide will tell you everything you need to know about tax on rental income, including how to declare your earnings, what you can offset, and more.

Table of Contents

What Taxes Do I Pay as a Landlord?
Do I need to Declare Rental income to HMRC?
How Much Tax do you Pay on Rental Income?
Allowances and Tax Relief for Landlords

What Taxes Do I Pay as a Landlord?

Landlords pay income tax, Capital Gains Tax, and Stamp Duty Land Tax. You won’t pay all of these at the same time – income tax is calculated based on your earnings, Capital Gains Tax is based on the sale of assets, and Stamp Duty Land Tax is charged when you purchase a property.

Income Tax

Income tax is based on your rental income from your properties. Rental income can be any money you receive from your tenants for rent, cleaning or gardening fees, utilities, deposits and more. The first £1000 you earn from property rentals is tax-free, any earnings above this must be reported to HMRC. You can complete a self-assessment tax return online or have an accountant do it on your behalf.

Capital Gains Tax

Capital Gains Tax or CGT is a tax that you pay on a portion of the profit from the sale of assets, e.g. property or land. You only pay CGT on property that is not your main residence. If you make more than £3000 profit on a property sale, you are subject to CGT. CGT is calculated based on your income tax rate as well as the profits from the sale. The amount of CGT you pay can be from 10% to 28% depending on your income tax rate, what tax bracket you fall into, and whether you have made any losses, as this can be used to offset your taxable profits.

Stamp Duty Land Tax

Stamp Duty Land Tax, also known as just stamp duty or SDLT is paid on properties or land sold in the UK. At the time of writing (December 2024) SDLT applies to properties with a sale price of over £250,000. From 1st April 2025, properties over £125,000 will be subject to SDLT. First-time buyers can get a discount on their SDLT – until April 2025 they can buy a property of up to £425,000 without paying SDLT, but after April the threshold will be just £300,000. See the full breakdown of SDLT thresholds including multiple residential properties here.

Do I Need to Declare Rental Income to HMRC?

If you earn more than £1000 per year in gross income, i.e., without any deduction, then you need to declare this to HMRC, even if your net profits put you under the basic income tax threshold. If your taxable income is under £12,570, you will not need to pay income tax, but you still need to complete a tax return. You can also choose to pay Class 2 National Insurance contributions to qualify for a State Pension or other benefits. This will be billed at the same time as your tax bill.

Remember that if your profits are split with a business partner, then your tax obligation will be too. Contact an accountant for more advice on this if you are in a joint partnership or own rental properties with another party.

If you are renting out a room in your own household, you can earn up to £7,500 per year tax-free. You just need to opt into the scheme on the HMRC website. The Rent-a-Room scheme is only available if you let a fully furnished room to a lodger in your main dwelling. It also applies to those who run a guest house or bed and breakfast business. You cannot use this scheme if you do not live at the property, it is not furnished, or the room is used as an office or other place of business.

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How Much Tax do you Pay on Rental Income?

You pay the same in income tax on rental income as any other kind of earnings, less any allowances that are available to landlords. See the next section for more details on this. The current tax brackets are as follows:

Income Tax Band	Taxable Income	Tax Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 – £50,270	20%
Higher Rate	£50,271 – £125,139	40%
Additional Rate	£125,140 and above	45%

Allowances and Tax Relief for Landlords

Your income is taken from your net income, so you can deduct any expenses you incur as a landlord. This could include:

General maintenance and repairs to the property
Replacing domestic items, e.g. beds, sofas, curtains, carpets, fridges, crockery and cutlery
Property management or letting agent fees
Insurance, e.g. landlord’s insurance, building insurance or public liability insurance
Utilities like water, gas and electricity (unless they are paid by the tenant of course)
Council tax (see above)
Some legal fees
Vehicle running costs
Other costs of running a business, phone calls, advertising, stationery, etc

You may notice that mortgage payments are not listed here. You cannot claim your entire mortgage payment against your income tax, but you can claim a tax credit of 20% of your mortgage interest.

If you own properties through a limited company rather than as a private landlord, this may reduce your tax obligations. Corporation tax is between 19% and 25%, so if you would be paying 40% or 45% in personal income tax, this is preferable. Consider your financial situation first before starting a limited company for tax benefits – limited companies may get charged more interest on mortgages.

It’s always important to keep track of all earnings and expenses when letting property – you can use accounting software or a simple spreadsheet. Whatever system you use, be sure to update it regularly and save receipts for all transactions. You can complete your tax return yourself as a sole trader, but if you own multiple properties or rent your properties out through a limited company, I would advise using an accountant instead.

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