How much tax does a landlord need to pay? 10 key questions answered…

The UK has more than 2.7m unincorporated landlords and each year they report to HMRC rental property income worth some £41bn. Unincorporated landlords are people who earn additional income from renting out property as private individuals, rather than via their own property rental company.

You might already be one of them or you may be considering becoming one in the near future, so that you can supplement your income. Naturally, you’ll want to know how much tax you’ll need to pay as a landlord. To give you a better understanding, below you’ll find the answers to 10 frequently asked questions about private landlord tax.  

1. Is my rental income taxable?

Rent and associated payments you receive from tenants is income and once it’s over certain thresholds, you must pay tax on it. Legitimate expenses you pay to rent out your property are tax deductible, so you only pay tax on your profits. Tax allowances are also taken into consideration, as is income you earn from other sources. The higher your total taxable income, the more tax you’ll pay. 

If you rent out more than one UK property, the taxable profits from all are added together when HMRC works out your tax bill. Any income you earn from overseas properties must be reported separately.

Need to know! Different tax rules apply if you’re renting a room in your home, earning income from a furnished holiday letting, renting out a property overseas or letting a property in the UK while you live abroad.

2. Will I need to register for Self Assessment?

• Tax isn’t payable on the first £1,000 of rental income. This is called your property allowance.
• If you earn between £1,000 and £2,500 a year from rental property income, you must contact HMRC to find out how to report it.
• If you earn £2,500-£9,999 a year from rental income after allowable expenses (see question 7) have been deducted or £10,000 before they’re deducted, you’ll need to report it via Self Assessment, which is the system HMRC uses to collect Income Tax from landlords, sole traders and others.
• If you don’t already file a Self Assessment tax return, you need to register by 5 October following the tax year in which you earned rental income.

3. What records do I need to keep?

As a landlord, you must keep accurate records of the dates when you let out your property, as well as all rent and associated payments that you’ve received (eg if you charge for maintenance), rent books, bank statements, as well as receipts and invoices for things you want to claim as tax expenses. Keep a detailed mileage log if you plan to claim for travel costs.

If your landlord records are not accurate, complete and legible, HMRC can charge you a penalty, which can also apply if your Self Assessment tax return isn’t accurate. HMRC can ask to see proof of the information you enter into your Self Assessment tax return.

Need to know! You must keep your records for one year after the 31 January tax return deadline for each tax year (ie 22 months from the end of the tax year) .

4. How is tax on my rental income calculated?

Your tax expenses will be taken away from your total rental income and once your tax allowances have been accounted for, and your other taxable income considered. HMRC will then work out how much tax you owe, based on information you file via your Self Assessment tax return. You have to provide these figures to HMRC (hence Self Assessment).

5. How much tax will I pay on my rental income?

How much tax you pay is determined by:

• how much you claim in tax expenses and allowances
• how much rental income you receive and
• how much taxable income you receive from all other taxable sources (which can include wages from employment or self-employment, pension payments, share dividend payments, etc).

You’ll be taxed according to the Income Tax band into which you fall once your total taxable income has been calculated. The Income Tax band tax rates for the 2024/25 tax year are as follows:

Band	Taxable income	Tax rate
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%

The Personal Allowance decreases by £1 for every £2 of net income over income of £100,000 and if your net income is £125,140 or more – you don’t get the Personal Allowance. Income Tax bands and rates are different in Scotland.

Need to know! As an unincorporated landlord, no National Insurance is payable on your rental income. It can be if you’re running a property business (ie running a bed and breakfast or hotel type business where a trade takes place). 

6. What if I own a rental property with others?

If you share ownership of the rental property with others, the tax you pay will be determined by your share percentage. So, if it’s 50%, you’ll be taxed on half of the taxable rental income from the property. This is a common scenario when properties are jointly owned by spouses and civil partners. As another example, if you own a quarter of a property, you’ll be taxed on 25% of the taxable rental income.

Need to know! Where a married couple or civil partners living together jointly own a property, income is usually split and taxed 50/50. The only way around this  is to provide proof of unequal ownership to HMRC.

7. What tax expenses can I claim?

HMRC allows you to deduct many allowable expenses from your rental income if they’re generated wholly and exclusively as a result of renting out your property. You can’t claim for personal costs. Where there is mixed usage (eg your mobile phone), you can claim part expenses, but you must reliably work out what proportion of the total cost was property-related.

Allowable expenses for landlords can include:

• property maintenance and repairs (eg replacing windows or roof tiles)
• ground rents and service charges (if applicable)
• redecorating between tenancies
• insurance (eg building, contents and public liability)
• water rates, council tax, gas and electricity (if you pay them, rather than your tenant)
• gardening and cleaning costs
• letting agent fees/management fees
• legal fees for lets of a year or less (eg for legal advice about pursuing unpaid rent, etc)
• accountancy/bookkeeping fees
• direct costs (eg phone calls, stationery and advertising for new tenants)
• vehicle/fuel costs (only the proportion used for your rental business)
• costs for disposing of old items of furniture or electrical appliances, etc.

What about replacing furnishings and equipment?

If you rent out a furnished or part-furnished property, you can’t claim an allowable expense for replacing furnishings or equipment. However, you can claim Replacement Domestic Items relief for replacing a sofa, bed, carpets, curtains, white goods, crockery, cutlery, etc. The quality should be similar, because you can only claim the value of a like-for-like replacement.

Need to know! Improving a property, by building an extension or converting a loft, for example, isn’t an allowable expense, because you’re making a capital improvement (ie increasing the property’s value). You may be able to claim capital expenses against Capital Gains Tax if you later sell the property, so keep a record and proof of all costs.

8. Is my mortgage interest tax deductible?

You can’t claim mortgage capital repayments as an allowable expense. And although pre-2017 you could deduct mortgage interest and other finance costs such as mortgage arrangement fees from your rental income to reduce your Income Tax bill, instead, you now receive a 20% tax credit.

Need to know! If you increase your mortgage loan on your buy-to-let property, you may be able to treat interest on the additional loan as a revenue expense, or get Income Tax relief providing the additional loan is wholly and exclusively for renting out the property.  

9. How do I report my rental income?

You report your rental income by filling out and filing the SA105 tax form, summarising your total rental income and allowable expenses you want to claim. At the same time, you must also fill out and file the main Self Assessment tax return, the SA100.

Together they give the information that HMRC needs to be able to work out your tax bill.

Each year, the Self Assessment tax return online filing deadline is midnight on 31 January. Miss it and you’ll immediately need to pay a £100 fine. After three months, the fine increases. If HMRC asks you to send a Self Assessment tax return you must give details of your rental income and expenses for the tax year – even if you have no tax to pay.

Need to know! The deadlines for paying your tax bill are usually: 31 January for any tax you owe for the previous tax year (known as a balancing payment) and your first payment on account (ie advance payments towards your tax bill); 31 July for your second payment on account to pay the balance for any tax you owe. You can make weekly or monthly payments towards your tax bill should you prefer.

10. What if I make a loss?

If your allowable expenses are higher than your rental income and you make a loss, you can offset it against any profits from your rental income in future years. And if you rent out more than one property, the income and expenses from all must be added together to work out your overall profit or loss. Expenses for one property can be offset against income from another property. If there is a loss from one property it’s automatically offset against the profits from another. You report losses via your Self Assessment tax return. There may be restrictions to claiming losses if you have a furnished holiday let property, when these losses can only be offset against future profits of the same property.

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.