How to pay tax on rental income
If you live in the UK and have rental income, you’ll usually have to pay tax on it.
You do this by filing a Self Assessment tax return – TaxScouts can help you do it 100% online.
How much rental income tax will I have to pay?
How to calculate what you will pay tax on:
- figure out which allowable expenses or allowances you want to claim
- deduct those from your total rental income
- this is your rental profit – add it to your other income (wages, etc.) to figure out what your total income for the year was
- based on this you’ll know what tax band you’re in
- you’ll pay tax on rental profits at the tax rate corresponding to your tax band.
In case you don’t know what are the tax bands and tax rates in the UK:
|Up to £12,500||0%||Personal allowance|
|£12,501 to £50,000||20%||Basic rate|
|£50,000 to £150,000||40%||Higher rate|
|over £150,000||45%||Additional rate|
What if I also live on the property?
Then you can be eligible for the Rent-a-Room Scheme – probably the best tax-free allowance for landlords:
- zero tax on the first £7,500 you make from rent
- you don’t even need to submit a Self Assessment tax return if you earn under this
- if you host on Airbnb or other platforms, you can also use it.
What if it’s a buy-to-let or second home?
Then HMRC will ask you to treat it as a business:
- you can’t claim the Rent-A-Room Scheme
- but you can claim tax relief on your mortgage interest
- and you can also claim your rental expenses in the usual way.
What expenses and allowances can I claim?
You can claim pretty much everything related to running your property and being a good landlord:
- letting agents’ fees, accountants’ fees (incl. TaxScouts), or legal fees
- rent, ground rent, and service charges (like cleaning)
- gas, electricity, water, and other utilities.
There are also quite a few allowances you can use:
- the Personal Allowance: if your total income (rent + other sources) is under £12,500, then you don’t need to do anything – it’s tax-free
- the Marriage Allowance: can be worth another £250
- the Rent-A-Room Scheme: if you also live on the property, then you can claim a flat £7,500 tax-free allowance
- the Property Income Allowance: you should use it if you don’t live on the property or you didn’t have big expenses. It’s a flat £1,000.
Can I claim my mortgage payments as an expense?
It’s a bit complicated, but yes:
- you can only claim your mortgage interest
- this is gradually being replaced with a flat 20% tax credit
- these changes won’t really impact you unless your total income is around £50,000 – check out some example calculations here.
What if I own it jointly with my partner?
- if you’re not married, your share of the rental profits will be based on the share of the property you actually own.
- if you’re married or in a civil partnership, then you will have to split the profits, expenses, and most of the allowances (except the personal allowance and the property income allowance) 50/50. You could also benefit from the Marriage Allowance.
Read more in our guide to paying rent from jointly owned properties.
What if it’s a property abroad?
Most of the time, you’ll pay tax on the rental income just as if it was based in the UK – read more on our guide to paying UK tax on foreign income here.
Do I need to do a Self Assessment tax return?
- no, if your rental income is under £1,000 and you don’t have another reason to file a tax return
- no, if your rental income is between £1,000 and £2,500 – but you still need to contact HMRC
- yes, if you earn more than £2,500 from rent.
Are there any other taxes?
Yes, but you won’t have to pay them every year:
- when you’re buying a property, you’ll have to pay Stamp Duty
- when you’re selling your property, you’ll have to pay Capital Gains Tax on that profit (if any). You might also have to pay CGT if you’re giving the property as a gift
- you might also have to pay National Insurance if your rental profits are over £6,205 per year
- after you pass away, your heirs might also have to pay Inheritance Tax.
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