What Is Taxable Rental Income?
If you rent out a property in the UK, any money you receive from tenants is considered taxable income. This includes not only rent but also any additional payments tied to the tenancy, such as maintenance charges, service fees, or contributions towards utility bills if you pay them on the tenant’s behalf.
However, you’re not taxed on the total amount of rent you receive. You are taxed on the profit you make after deducting allowable expenses. Profit is calculated as your total rental income minus costs that are wholly and exclusively related to letting the property.
Your rental profit is added to your other sources of income, such as employment income, pensions, or dividends. The amount of tax you pay depends on your total taxable income across all sources in a given tax year.
If you rent out multiple UK properties, HMRC aggregates the profits from all of them to calculate your taxable rental income. If you let property overseas, you must report this income separately as foreign property income. Different rules apply if you rent a furnished holiday let, rent a room in your own home, or let out UK property while living abroad.
The Property Income Allowance
Landlords in the UK are entitled to a £1,000 tax-free property allowance each year. This applies to your gross rental income, which means the total amount you receive before any deductions. If your annual rental income is £1,000 or less, you do not need to inform HMRC or pay tax on it.
If your rental income exceeds £1,000, you must either claim actual expenses or use the property allowance. You cannot claim both. For many landlords with small amounts of rental income and few expenses, the allowance is the simpler option.
When You Must Register for Self Assessment
If you earn between £1,000 and £2,500 a year in rental income, you should contact HMRC to confirm how to report it. You may not be required to complete a full tax return, depending on your individual circumstances.
However, if your rental income is between £2,500 and £9,999 after allowable expenses, or if your gross rental income exceeds £10,000 in a tax year, you must file a Self Assessment tax return.
You must register for Self Assessment by 5 October following the end of the tax year in which you earned the income. For example, if you began letting out a property in June 2024, you must register by 5 October 2025 to report income for the 2024/25 tax year.
Once registered, you will receive a Unique Taxpayer Reference (UTR) number, which is required to submit your Self Assessment return. HMRC uses this number to track your tax obligations, and you’ll also need it if you engage an accountant to assist with your tax affairs.
Deadlines for Filing and Paying Tax
The tax year in the UK runs from 6 April to 5 April the following year. If you’re submitting your tax return online, the deadline is 31 January after the end of the tax year. Paper returns must be submitted earlier, by 31 October.
You must also pay any tax owed by 31 January. If your tax bill exceeds £1,000, you may be required to make payments on account for the following tax year. This means paying half of your estimated next year’s tax in advance—one payment on 31 January and the second on 31 July.
For example, if your tax bill for the 2024/25 tax year is £3,000, you’ll need to pay £1,500 by 31 January 2026 and another £1,500 by 31 July 2026, in addition to settling the £3,000 due.
Missing deadlines can result in automatic penalties, even if you owe no tax. The initial late filing penalty is £100, and further penalties apply after three, six, and twelve months.
What Records Landlords Must Keep
To accurately complete your Self Assessment return and substantiate any figures reported to HMRC, you need to keep detailed records of your rental business. These records serve as evidence for both the income received and the expenses you intend to claim.
The following information should be recorded and retained:
- The start and end dates of each tenancy period
- The rental amount agreed upon and actually received
- A record of all rent payments and deposits
- Details of any additional payments received (e.g., cleaning fees or late payment charges)
- Receipts and invoices for all property-related expenses
- Bank statements showing rental income and expense payments
- Copies of tenancy agreements
- Mileage logs if you claim for travel related to property management
- Insurance policies for the rental property
- Service charge and ground rent statements
- Communications with letting agents, tenants, or contractors
All records must be kept for at least one year after the Self Assessment deadline for the tax year to which they relate. For the 2024/25 tax year, that would mean keeping documents until at least 31 January 2027.
However, if you’re self-employed or have multiple income streams, HMRC recommends keeping records for up to six years. This is particularly important if your tax affairs are more complex or you have property that could be subject to Capital Gains Tax upon sale.
Keeping Records Digitally
Although keeping records on paper is still permitted, landlords are encouraged to keep digital records to streamline tax preparation. Digital bookkeeping can also help you comply with Making Tax Digital requirements, which will become mandatory for landlords with annual property income over £50,000 from April 2026 and over £30,000 from April 2027.
Using accounting software or spreadsheets allows you to log income and expenses in real time, reducing the chance of errors. Some landlords opt to use property management software that also handles tenant communication, rent tracking, and maintenance requests—all of which support more accurate record-keeping.
What Happens if You Don’t Keep Records
Failing to maintain adequate records can result in penalties from HMRC. If you’re selected for a compliance check or investigation and cannot provide evidence to support your tax return, HMRC can disallow deductions, charge interest on unpaid tax, and issue financial penalties.
HMRC has the authority to look back up to 20 years in cases of serious tax evasion. For less serious or unintentional errors, the window is typically four to six years. Keeping full records for at least six years provides added protection in the event of a review.
Declaring Rental Income Correctly
When you complete your Self Assessment tax return, you will need to include rental income and expenses on the SA105 supplementary form, which accompanies your SA100 main return.
On the SA105 form, you will list:
- The total income received from all UK rental properties
- The total allowable expenses claimed
- Any adjustments for private use or non-qualifying expenses
- Details of any jointly owned property, including the share of ownership
- Profits or losses carried forward from previous tax years
If you are jointly letting property, each owner must report their share of the income and expenses. Married couples and civil partners usually split rental income 50/50, regardless of ownership percentages, unless they submit a declaration to HMRC specifying a different ownership ratio.
When Letting a Room in Your Own Home
If you rent out a furnished room in your main home, you may be eligible for the Rent a Room Scheme. Under this scheme, you can earn up to £7,500 tax-free each year. If two people share ownership of the property, the allowance is split equally, so each can earn up to £3,750 tax-free.
To qualify, the accommodation must be part of your main residence, and it must be furnished. The income can come from either a lodger or someone using the room short-term, such as for weekday stays.
You can choose to opt into the Rent a Room Scheme if you earn more than £7,500 from the arrangement, but you cannot claim any expenses if you do. Alternatively, you can opt out and claim actual expenses against the income instead, if that would reduce your tax liability.
Reporting Past Undeclared Income
If you realise that you’ve not declared rental income from previous tax years, it’s best to act promptly. The Let Property Campaign allows landlords to voluntarily disclose previously unreported rental income to HMRC. By coming forward voluntarily, you can usually avoid higher penalties and reduce the amount of interest charged.
To take part in the campaign, you notify HMRC of your intention to disclose, calculate the amount of tax owed, and make a full disclosure along with payment. It is advisable to consult a tax adviser before submitting to ensure your calculations are accurate and that you include all relevant years.
Income Tax Bands, Calculating Your Bill, and Claiming Expenses
As a landlord in the UK, understanding how rental income is taxed is crucial to meeting your obligations and managing your finances effectively. After determining whether your income is taxable and registering for Self Assessment, the next key step is learning how much tax you’ll actually pay.
Covers how HMRC calculates your tax bill, how the UK’s income tax bands apply to landlords, what expenses you can claim, and how joint property ownership affects your tax position. It also explains key differences such as capital improvements versus deductible maintenance, and how furniture replacement is treated.
How HMRC Calculates Your Tax on Rental Income
Your tax bill as a landlord is determined by calculating your taxable profit. This is the total rental income you receive in a tax year, less any allowable expenses. Taxable profit is then added to your income from other sources—such as employment, pensions, savings interest, or dividends—to determine your total taxable income.
The UK tax system is progressive. This means that you only pay higher rates of tax on the portion of your income that exceeds each threshold, not on the whole amount. After subtracting your Personal Allowance (if applicable), HMRC applies the income tax bands to determine how much you owe.
If your rental business makes a loss, that amount can usually be carried forward to offset future profits. You report this figure when you complete your Self Assessment return, using form SA105.
Current Income Tax Bands and Rates in the UK
Income tax rates for rental income are the same as those applied to your employment or pension income. Below are the tax bands that apply in England, Wales, and Northern Ireland for the current tax year:
- Personal Allowance: Up to £12,570 – 0%
- Basic Rate: £12,571 to £50,270 – 20%
- Higher Rate: £50,271 to £125,140 – 40%
- Additional Rate: Over £125,140 – 45%
Your Personal Allowance gradually reduces once your total income exceeds £100,000. It is removed entirely if your income exceeds £125,140, which means all income is taxable from the first pound above this threshold.
Note that Scotland uses different income tax bands and rates, which affect employment income but not rental income. Rental income is taxed at the standard UK rates even for Scottish residents.
What You Pay Tax On
You are only taxed on your net rental profit. This means that you can subtract qualifying costs and allowances from your rental income before tax is calculated. The most common deductions include costs for repairs, maintenance, letting agent fees, and insurance.
The remaining amount after deductions is considered taxable rental profit and is added to your total taxable income. This combined figure is used to determine how much tax you owe within each band.
If you are employed and already have tax deducted from your salary through PAYE, your rental profit could push your total income into a higher tax band. For example, if you earn £45,000 from your job and £10,000 in rental profits, the additional rental income will place you into the higher-rate tax band for the portion that exceeds the threshold.
Jointly Owned Property and Tax Responsibility
If you own a rental property with someone else, your share of the income and profits will usually be determined by your ownership percentage. For example, if you and your spouse each own 50 percent of a property, you are both responsible for reporting 50 percent of the rental income and 50 percent of the allowable expenses.
By default, married couples and civil partners are treated as having equal shares in jointly owned property. However, if the actual ownership split differs—for example, one partner owns 80 percent and the other 20 percent—you can inform HMRC by submitting Form 17 along with evidence of the ownership ratio, such as a deed or trust agreement.
Each person reports their share on their own tax return. If one party has little or no other income, a different ownership ratio could result in a lower overall tax bill by maximising the use of lower tax bands and personal allowances.
Expenses You Can Claim to Reduce Your Tax Bill
Landlords can reduce their tax bill by claiming a wide range of allowable expenses. To qualify, expenses must be incurred wholly and exclusively for the purposes of renting out the property. These costs must be directly related to running and maintaining the rental property.
Common deductible expenses include:
- General repairs and maintenance (such as fixing a broken boiler)
- Redecorating between tenancies
- Cleaning and gardening services
- Letting agent and property management fees
- Accountancy and legal costs relating to the rental
- Landlord insurance, including buildings and contents policies
- Service charges, ground rent, and utilities (if paid by the landlord)
- Advertising costs to find new tenants
- Council tax (only if the landlord is responsible)
- Phone calls and stationery used for managing the rental
- Travel expenses to the property (mileage can be claimed if using a personal vehicle)
- Disposal of old furniture and appliances
The key requirement is that the expense must be related to the rental activity and not for personal benefit. If an expense has both personal and business use—such as a mobile phone—you must only claim the portion used for the rental.
Travel and Mileage Costs
Landlords who use their personal car to manage their property can claim travel expenses either by recording actual costs (fuel, insurance, etc.) or by using the simplified mileage allowance. The current approved mileage rate is 45p per mile for the first 10,000 miles in a tax year and 25p per mile thereafter.
You must keep a detailed mileage log including the date, destination, purpose of the trip, and distance travelled to support your claim. Casual visits or journeys made for personal reasons are not deductible.
Replacement Domestic Items Relief
Since 2016, landlords of residential properties can no longer claim a wear and tear allowance. Instead, you can claim relief when you replace domestic items such as beds, sofas, fridges, or curtains.
The relief applies to the cost of replacing a worn-out item with a like-for-like replacement. If you upgrade to a more expensive version, only the cost of a similar item can be claimed. The original purchase of the item cannot be deducted—only replacements qualify.
To claim this relief, the property must be let out on a furnished or part-furnished basis. You must dispose of the old item and replace it for the benefit of the tenant. Replacement Domestic Items Relief does not apply to furnished holiday lets, which are treated separately for tax purposes.
Capital Expenditure vs Revenue Expenditure
Understanding the difference between capital and revenue expenditure is vital when managing your rental accounts. Revenue expenses are ongoing costs that can be deducted immediately against rental income. Capital expenses, on the other hand, improve the value of the property and cannot be deducted from your rental profit.
Examples of revenue expenditure include:
- Fixing a leaking roof
- Replacing a worn-out carpet
- Painting and decorating between tenants
- Servicing a heating system
Examples of capital expenditure include:
- Adding a conservatory or loft conversion
- Building an extension
- Replacing single glazing with double glazing (if it’s a substantial improvement)
- Installing a new kitchen where none existed before
Capital expenses are not deducted from rental income but can be used to reduce the gain when you eventually sell the property and calculate Capital Gains Tax. Keeping detailed records of capital expenditure is important for this purpose.
Mortgage Interest and Tax Relief
One of the most significant changes for landlords in recent years has been the phasing out of mortgage interest relief. Prior to 2017, landlords could deduct mortgage interest payments from rental income to reduce their tax bill. This rule has changed and now works as a tax credit instead.
You can no longer deduct mortgage interest as an expense. Instead, you receive a basic rate (20 percent) tax credit on the interest portion of your mortgage payments. This tax credit is applied to reduce your final tax bill after your liability has been calculated.
For example, if you paid £6,000 in mortgage interest, you cannot reduce your taxable income by that amount. However, you can claim a £1,200 credit (20 percent of £6,000) against your final tax liability.
This change has had the most significant impact on higher and additional rate taxpayers, who used to benefit from 40 or 45 percent relief. Now, everyone gets the same flat-rate 20 percent credit, regardless of their income level.
If you remortgage and use the additional funds for the rental business—such as repairs or to purchase another property—the interest on the new portion may also qualify for relief, provided it’s used wholly for rental purposes.
What If You Make a Loss?
If your allowable expenses exceed your rental income in a given tax year, you have made a rental loss. Losses can be carried forward to future years and offset against profits from the same rental business. This helps reduce your tax bill in later years when the property becomes profitable again.
If you own multiple properties, HMRC treats them as one rental business, and profits and losses are pooled. A loss on one property can be used to reduce profit on another.
Losses must be reported in the tax return in the year they arise. If they are not declared, they cannot be carried forward, even if they would have reduced tax in later years.
Furnished Holiday Lets and Losses
If you run a furnished holiday let that qualifies under HMRC’s criteria, the rules on losses are different. Losses from a furnished holiday let can only be offset against future profits from the same property business. They cannot be combined with other residential rental income or offset against general income. Because of this separation, it is important to distinguish between residential rental income and income from furnished holiday lets when reporting on your Self Assessment.
Reporting Rental Income via Self Assessment
If your rental profits exceed £2,500 after expenses, or your total income from renting property before expenses exceeds £10,000 in a tax year, you must submit a Self Assessment tax return. You do this using two main forms:
- SA100 – the standard Self Assessment tax return
- SA105 – the supplementary property income form
The SA105 is where you report your rental income and expenses. It includes sections for both UK residential and overseas properties. You must file this form for every tax year in which you earn rental income that exceeds HMRC thresholds. Filing can be done online or by paper, although online filing is more common and offers a later deadline. If you have multiple properties, you combine the rental figures into one set of entries on the SA105 form. The exception is furnished holiday lets and overseas property, which require different treatment.
Registering for Self Assessment
If you are a new landlord and have not previously submitted a Self Assessment tax return, you must register with HMRC. The deadline for registration is 5 October following the end of the tax year in which you first earned rental income. For example, if you began letting a property in the 2024/25 tax year (ending 5 April 2025), you must register by 5 October 2025.
After registering, HMRC will issue you with a Unique Taxpayer Reference (UTR) number. This number is required to access your online tax account and complete your return.
Key Filing Deadlines
There are two main deadlines to remember each year for filing your tax return:
- Paper returns: 31 October following the end of the tax year
- Online returns: 31 January following the end of the tax year
If you miss these dates, automatic penalties are applied regardless of whether any tax is owed.
For most landlords, online filing is the easiest and most flexible option. You can register with HMRC’s online system and complete the forms yourself, or use commercial software or an accountant.
Payment Deadlines and How to Pay
In addition to filing deadlines, there are two key tax payment dates to keep in mind:
- 31 January: This is when your balancing payment is due for the previous tax year. If you owe more than £1,000 in tax, it is also the date your first payment on account for the next tax year is due.
- 31 July: This is when your second payment on account is due.
Payments on account are advance payments toward your next year’s tax bill. Each is normally 50 percent of your previous year’s tax liability. If your income has increased or decreased significantly, you can adjust these payments to reflect the change.
There are several ways to pay HMRC, including online banking, debit card, CHAPS, BACS, or via direct debit. It is essential to quote your UTR number when making a payment to ensure your tax account is properly credited.
What Happens If You File or Pay Late?
Late filing and payment can trigger automatic fines and interest charges. Here’s how penalties work for missing the Self Assessment deadline:
- 1 day late: £100 fixed penalty
- 3 months late: £10 per day up to 90 days (£900 maximum)
- 6 months late: Additional £300 or 5% of tax due, whichever is higher
- 12 months late: Another £300 or 5% of tax due (in some cases, up to 100%)
Interest is charged on unpaid tax from the day after the payment deadline until the tax is paid in full. The interest rate is variable and linked to the Bank of England base rate.
Missing the 31 January deadline by even a single day results in a £100 penalty. This applies whether or not you owe any tax. If you’re unable to pay your tax bill, you can contact HMRC to discuss a payment plan. This won’t remove penalties but may help avoid enforcement action.
Voluntary Disclosure and Late Registration
If you have received rental income in the past and failed to report it, HMRC offers a Let Property Campaign to allow landlords to come forward voluntarily and settle their tax affairs. This campaign is aimed at unincorporated landlords who have underpaid tax in previous years.
You must notify HMRC of your intention to disclose, calculate what you owe, and pay the outstanding amount. While penalties still apply, they are generally lower than if HMRC finds out independently. Penalties are based on the degree of cooperation and whether the non-disclosure was careless, deliberate, or concealed.
You can’t use this campaign if HMRC has already opened an enquiry into your tax affairs. In that case, you’ll need to respond through formal channels.
How HMRC Checks for Undisclosed Rental Income
HMRC uses multiple tools and data sources to identify landlords who may not be declaring their rental income. These include:
- Land Registry records
- Council tax databases
- Deposit protection schemes
- Utility companies
- Letting agents
- Online property listings
The Connect database system allows HMRC to cross-check these sources with information reported in Self Assessment. If discrepancies are found, HMRC may open an enquiry or investigation.
Letters may be sent inviting landlords to review their tax affairs or asking for more information. Failure to respond or cooperate can result in penalties or legal action.
Record-Keeping Requirements
Landlords must maintain accurate records to support their tax returns. HMRC expects records to be clear, complete, and stored for a minimum period after the tax year ends.
For individuals, records must be kept for at least 22 months after the end of the tax year. If the return is submitted late, or HMRC opens an enquiry, records should be retained until the enquiry is closed.
Essential documents include:
- Dates the property was let
- Rental income received (bank statements, rent books)
- Receipts and invoices for allowable expenses
- Contracts, tenancy agreements, and deposit records
- Travel logs (if claiming mileage)
- Utility bills and service charges (if paid by the landlord)
- Mortgage interest statements
- Evidence of capital improvements or major repairs
You can keep these records digitally or on paper. However, digital record keeping will soon become a legal requirement under Making Tax Digital for Income Tax.
Making Tax Digital for Landlords
Making Tax Digital (MTD) is a government initiative to move tax reporting into a digital system. While MTD for VAT is already in place, MTD for Income Tax is the next phase and will affect landlords with gross rental income above £50,000 from April 2026, and those earning above £30,000 from April 2027.
When implemented, landlords will be required to:
- Keep digital records of income and expenses
- Submit quarterly updates to HMRC
- File an end-of-period statement (EOPS) annually
- Submit a final declaration to confirm income
MTD aims to reduce errors and simplify the tax system, but it will require landlords to use compatible software. The shift will particularly affect those who currently maintain paper records or use spreadsheets.
Although not yet mandatory for most landlords, it is advisable to start preparing for digital record keeping now, especially if your income is close to the upcoming thresholds.
Dealing with an HMRC Investigation
If HMRC suspects you have underpaid tax or provided inaccurate information, it may open a formal enquiry. This could be triggered by a discrepancy in your tax return, third-party data, or a random audit.
An enquiry usually starts with a letter requesting more details or documents. You are legally required to respond and provide accurate information. In more serious cases, HMRC may conduct on-site visits or interview you under caution.
Penalties in investigations depend on the behaviour involved. If the issue was due to carelessness, the penalty is lower than if it was deliberate. You may reduce the penalty by cooperating and making a full disclosure.
If you disagree with HMRC’s findings, you can request a review or appeal to the tax tribunal. However, ignoring correspondence or failing to cooperate can result in fines, asset seizures, or court proceedings.
Tax Planning Strategies for Landlords
While paying tax is a legal obligation, there are lawful ways to reduce your liability through tax planning. These include:
- Allocating property ownership between spouses for efficient use of tax bands
- Using capital expenditure to reduce future Capital Gains Tax
- Keeping detailed records of all allowable expenses to ensure full claims
- Timing major expenditures to maximise tax relief
- Considering incorporation if your rental portfolio is large
Incorporating your rental business can result in different tax treatment, especially with regard to mortgage interest and profits, but it also comes with costs such as corporation tax, administrative burdens, and potential capital gains implications on transfer.
It’s important to seek professional advice before making structural changes to your rental setup, especially if you own multiple properties.
Handling Multiple Properties
If you own several rental properties, they are treated as one property business for tax purposes. Profits and losses are pooled across all properties, and you report a single total figure on your SA105.
The exception is furnished holiday lets, which are assessed separately due to their unique tax rules. These lets may qualify for capital allowances and different reliefs, but they also require you to meet strict conditions related to availability, occupancy, and commercial letting.
If you own overseas property, that income must be reported separately and is not combined with your UK rental business. You may need to pay tax in the country where the property is located and then claim relief to avoid double taxation in the UK.
Preparing for Changes in Tax Legislation
The rules governing property taxation have changed considerably over recent years, and more reforms are expected. Landlords should stay informed about legislative updates, especially with the ongoing introduction of digital systems, environmental regulations, and shifting tax rates.
Keeping in regular contact with a qualified accountant or tax adviser can help ensure you remain compliant and take advantage of available reliefs and planning opportunities.
Conclusion
Navigating the tax landscape as a UK landlord may seem complex at first, but understanding your obligations is essential for protecting your income, avoiding penalties, and remaining fully compliant with HMRC. Whether you’re letting out a single residential flat or managing a growing portfolio of rental properties, how you handle your tax affairs can significantly impact your profitability and long-term financial health.
From the basics of what counts as taxable rental income, to identifying allowable expenses and understanding the implications of joint ownership or mortgage interest changes, landlords must be proactive in their approach. Accurate record-keeping, timely filing, and awareness of thresholds and deadlines are the pillars of a responsible and efficient rental business.
Additionally, the government’s transition toward digital tax reporting and stricter enforcement through data-matching and compliance checks makes it more important than ever to be organised and up-to-date. Landlords who embrace good practices early—especially in light of Making Tax Digital—will be better positioned to adapt to regulatory shifts and manage their liabilities effectively.
Being a landlord is not just about providing housing; it’s also about running a business. With careful planning, ongoing education, and the right tools, you can ensure your rental income works for you—not against you when tax season arrives. Taking the time to understand how tax works today will save you far more time, stress, and money in the years to come.