Rental income tax calculator
Your situation
Tax and profit
- Earnings from rent£18,000Incl. £1,000 tax-free property allowance
- Property tax to pay£4,346
- After-tax rental income£13,654
How your rental income tax is calculated
Your total rental income tax that you have to pay to HMRC depends on three things:
- How much you earned from rent
- If you also live there or not
- How much you earned from other income sources (salary, self-employment, etc., but not capital gains)
In your case you earned £18,000 from renting out a buy to let property, on top of £38,000 from other sources.
Rental income tax breakdown
Your rental earnings are £18,000
You can claim £1,000 as a tax-free property allowance.
As a result, your taxable rental income will be: £17,000.
The first £12,270 will be taxed at 20%: £2,454 in rental income tax.
The next £4,730 will be taxed at 40%: £1,892 in rental income tax.
What taxes do I pay as a landlord?
When you own a property that you rent out, you’ll likely have to pay tax on the income you get from the rent. It all depends how you rent out your property and how much you earn from the rent. Our rental income calculator covers both of the following types of landlord:
- Buy-to-let landlord – someone who rents out an entire property
- Live-in-landlord – someone that rents out a room in the property they’re living in
And don’t forget that under the buy-to-let landlord umbrella are those running holiday lets. That includes anyone who rents out their home or a second home on Airbnb.
So as a landlord, there are two types of tax that you might have to pay.
- Income Tax
- Capital Gains Tax
Income Tax is what you pay on the rent you earn, Capital Gains Tax is what you should pay if you sell your home for a profit.
How does income tax work on rental income?
As a buy-to-let landlord, you have to declare any rent that’s more than £1,000 during a tax year. The first £1,000 is tax-free and is known as the Property Income Allowance. Anything you earn beyond this is taxable at the usual Income Tax rates. To calculate the income you’re taxed on, you should add your rental income to your wages (if you’re employed) and any other income you have. The total amount is your taxable income.
The Property Income Allowance is only worth claiming if you’ve spent less than £1,000 during the tax year on your property business. This spending is known as your expenses. To lower your taxable income, you’re allowed to deduct your expenses from your rental income so you only pay tax on your profits.
What if I’m a live-in-landlord?
If you only rent out a room in your property, the rules are a bit different. You can earn up to £7,500 tax-free during a tax year using what’s known as the Rent-a-Room Scheme.
I’m selling my property. What now?
If you need to pay tax on your profits from selling your property, check out our Capital Gains Tax calculator instead.
Filing your Self Assessment tax return: TaxScouts vs HMRC
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If you like our Rental Income Tax calculator 👇
Now that you know all about tax on rental income, you’re ready for more! (And, let’s be real, you’re excited for more too, right?) These are three of our most read articles for landlords and anyone earning rental income. Take a look! Buying a new property? Check out our Stamp Duty Tax calculator instead.
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