Reviewed by RIFT's Quality and Service Manager, Edward Waine ATT

Rental income is money you earn from renting out a property. If this sounds like you, it's important to consider rental income and taxes together.

Residential properties are homes or flats leased to individuals or families. Commercial properties, on the other hand, include office spaces or retail units rented to businesses.

Furnished properties come equipped with furniture and appliances, typically commanding higher rents. Unfurnished properties are empty, so tenants provide their own furnishings, usually resulting in lower rental rates.

How rental income is taxed in the UK

In the UK, rental income is added to your total income for tax purposes. This includes wages or other earnings. You need to report this income on a Self Assessment tax return, where you’ll also subtract any allowable costs like repairs or mortgage interest, to work out your profit.

This profit is then taxed according to your income level. Self Assessment is important for landlords to make sure you report your rental income correctly and pay the right amount of tax. Keeping accurate records and submitting your return on time helps you avoid fines and ensures correct tax payment.

Allowable expenses for landlords

When managing rental properties, it’s helpful to understand which expenses you can claim to reduce your tax bill. Here’s a quick list of some of the expenses allowed.

  • Repairs
  • Maintenance
  • Letting agent fees
  • Insurance
  • Water rates
  • Gas and electricity

Revenue vs. capital expenses

  • Revenue expenses: Day-to-day costs like repairs and management fees, which can be deducted from rental income.
  • Capital expenses: Major improvements or purchases, such as renovating a kitchen, which are capitalised and depreciated over time.

Tax reliefs and deductions for landlords

UK landlords can benefit from several tax reliefs and deductions that can help to ease your tax burden. One common relief is the £1,000 property allowance, which lets you earn up to £1,000 from property income without paying tax.

Additionally, you can claim tax relief on allowable expenses like repairs, maintenance and letting agent fees. Mortgage interest relief is also available, though it’s now restricted to a basic rate tax credit.

It’s important to keep track of all your expenses and allowances to maximise your tax savings. Taking advantage of these reliefs can significantly reduce your taxable rental income.

How to work out your taxable profits on rental income

To work out your taxable profits from rental income, follow these simple steps:

  1. Add up your rental income: total all the rent you’ve received from your property.
  2. Subtract allowable expenses: deduct costs such as repairs, maintenance, and letting agent fees.
  3. Apply tax reliefs: deduct any applicable reliefs, like the £1,000 property allowance.

Example
Let’s say you received £10,000 in rent and had £3,000 in allowable expenses. Your profit would be £7,000. If you’re eligible for the £1,000 property allowance, your taxable profit is £6,000. This is the amount you'll report on your tax return.

Filing and reporting rental income

If you earn more than £1,000 a year from renting out property, you need to let HMRC know. For income between £1,000 and £2,500, you can report it using HMRC’s online service.

If your rental income exceeds £2,500 after deducting allowable expenses, or £10,000 before expenses, you must report it on a Self Assessment tax return. This ensures your income is properly declared and taxed.

Need a little help? Use our tax return service and we’ll make sure you’re getting the full amount you’re entitled to, without the stress.

Rental income taxes - FAQs

How much can I rent my house for without paying tax?

You can earn up to £1,000 a year from rental income tax-free under the £1,000 property allowance. If your rental income exceeds this amount, you’ll need to report it to HMRC and pay tax on the earnings above £1,000. This allowance helps reduce your taxable rental income.

Do I pay tax on rental income if I have a mortgage?

You will pay tax on rental income even if you have a mortgage. However, you can claim mortgage interest as a tax-deductible expense, which can help lower your taxable profit. Keep in mind that this relief is now limited to a basic rate tax credit, reducing the amount you owe.

Can I offset my mortgage interest against rental income?

You can offset mortgage interest against your rental income, reducing your taxable profit. However, this relief is now limited to a basic rate tax credit, meaning you can only claim 20% of your mortgage interest costs, which is deducted from your final tax bill rather than from your rental income.

Do you pay NI on rental income?

You don’t pay National Insurance (NI) on rental income. Rental income is treated as part of your overall income for tax purposes, but it’s not subject to NI contributions. You just need to report it on your Self Assessment tax return and pay the appropriate income tax on your profits.