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Your total rental income tax that you have to pay to HMRC depends on three things:
In your case you earned £18,000 from renting out a buy to let property, on top of £38,000 from other sources.
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.
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:
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 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.
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.
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.
If you need to pay tax on your profits from selling your property, check out our Capital Gains Tax calculator instead.
Calculating your tax is one thing, but there’s nothing like speaking to a real, human expert, right? That’s why we offer a pay-as-you-go tax accountant service. Get your tax return filed, a one-off tax advice consultation plus online support from an accredited accountant. Just £229, all in.
Or see our Guides, Calculators or Taxopedia
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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