Rental Income Tax in UK – What do you need to know?

What Is Rental Income?

Rental income is the money that a property owner receives in exchange for letting another person or business use their property. This income includes rental payments received in advance, late payments, and current payments received. In addition to that, money received for lease cancellations and refunded security deposits are also treated as rental payments. Any extra payments from renters for services that a landlord typically offers. For example, cleaning communal areas, hallways, and utility expenses includes hot water, heating, broadband, and water. Making arrangements for the property’s repairs or, if you charge any non-refundable deposits for your property, all these will be considered in your rental income tax in the UK. As will any money that is leftover from a returnable deposit at the end of the tenant’s lease.

You will be able to deduct expenses incurred as a result of renting out your property. You can also deduct a portion of the interest you pay on a loan if you have a mortgage. However, this is gradually being phased away.

How much tax will I pay on my rental income in UK?

If you are a landlord, you have to pay income tax on any profits you make from your own rental properties. Simply put, your profit is the amount that remains after you’ve totalled up all of your rental income and deducted any expenses or allowances. Furthermore, if you have a mortgage on the home you rent out, you can deduct a portion of the interest you pay on the mortgage from your income.

What is Rental income tax rate?

Rental gains have the same tax rate as business or employment income.It could be 0 per cent, 20 per cent, 40 per cent or 45 per cent, depending on which tax bracket the income falls. However, rental income adds to other income you receive. Which might increase your tax rate. You can check if you need to file for a self-assessment in the government website.


Your employment provides you with a salary of £40,000 each year.

Rental property generates an income of £20,000.

If you earn more than £52,270 in a year, you will be subject to higher-rate tax in 2021-22. 

The excess of £9,730 is subject to a 40% tax rate.

What if I live on the property as well?

In the event that you live in your rental home, you can be eligible for the Rent-a-Room Scheme, which is one of the best rental income tax-free allowances available to landlords:

There is no tax on the first £7,500 of rental income that you generate. There is no tax on the first £7,500 of rental income that you generate. 

If you earn under this scheme, then you don’t need to file for a Self Assessment tax return.

 You can also benefit from this tax credit if you host on Airbnb or other platforms.

What if I share ownership with my partner?

For unmarried individuals, your rental earnings is based on the percentage of property you own.

Suppose you’re married or in a civil partnership. In that case, you’ll have to split the profits, expenses, and most allowances (with the exception of the personal allowance and the property income allowance) 50/50 between you.

You may also be eligible to receive the Marriage Allowance.

When should I report Tax on Rental Income in UK?

Following the end of the tax year. You must notify the HMRC of your rental revenue by the time set forth in the legislation.

If your income from property rental is less than £2,500 per year, you should contact HMRC, except you report it on an assessment tax return that it is:

After deducting allowable expenses, the range is £2,500 to £9,999.

Before allowable expenses, £10,000 or more.

What happens if I make a loss on my rental income?

If you incur a loss you can then carry forward and offset against earnings from other properties or future profits from the same property rental business in the next tax year. However, you can’t offset it against any other sources of income.

How to avoid or reduce paying rental income taxes in UK?

Attempting to avoid paying taxes is a risky thing to do. If found guilty, you could face significant penalties. However, there are a few legal ways available to lower the amount of payable tax. For example,

  • You can carry forward any losses from the past years.
  • Make sure to claim all permitted expenses in order to reduce net rental revenue.
  • Transfer ownership with someone, ideally your spouse. Who do not have any income or who is in a low-rate tax bracket. This makes their tax rate for the rental revenue either a basic rate or at zero per cent of the rental income.

You can read more and understand more about rental property income in our article here.

What tax do I pay if I sell my rental property?

Suppose the value of your rental property has improved during your time as a buy-to-let landlord. In that case, you will be liable for capital gains tax (CGT) when you decide to sell your property. If you are in the basic tax bracket, any earnings from your sale will be subject to capital gains tax (CGT) at the rate of 18 per cent. If you’re in a higher tax rate, your tax rate will be 28 per cent.

If you have questions regarding self assessment. Give our article a read and if you have further queries. Feel free to write to us and we will get back to you.

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