How much tax will I pay on my rental income?
The rental income after deducting allowable expenses is added to your income for income tax purposes before savings income and dividend income.
If you are married and you jointly own a property then the income is divided equally between you (however you actually share the income) unless you receive it in different shares and you have made an election to HMRC. Please be aware that you cannot do this retrospectively.
The amount of tax you pay will depend on your individual circumstances, the type of income which you receive and any tax reliefs which you claim.
For a taxpayer who is under 65 and has no other income or reliefs, the rates of tax on his/her rental income are as follows:
|2021/22 to 2025/26*
|0% (Personal allowance||12,570|
|20% (Basic Rate)||37,700|
|40% (Higher Rate)||112,300|
|45% (Additional Rate)||over 150,000|
* The Government has announced in the Budget on 3rd March 2021 that personal allowances and the basic rate band would be frozen until 5th April 2026. The Welsh rates of Income Tax are set by the Welsh Government but are currently the same as England and Northern Ireland. The Scottish rates of income tax can be found at: https://www.gov.scot/publications/scottish-income-tax-2022-2023/
The personal allowance is withdrawn at the rate £1 for every £2 of income over £100,000 which gives an effective rate of 60% on income between £100,000 and £125,140 for 2021/22 to 2025/26.
If you have income from employment, self employment or pensions, this income uses up the personal allowance and the lower rates before the rental income. The rental income may take other income into the higher rate of tax. The higher and additional rates of tax on dividends are different.
Normally, you do not pay National Insurance Contributions unless you rent out surplus accommodation in the course of your trade and the rent received is included in your trading profits.
Your net rental income is treated as other income for tax credit purposes. You and your partner’s (if someone is living with you) other income are cumulated and if it is less than £300, the other income is zero or £300 is deducted from the total other income for tax credit purposes.
If you or your partner have income in excess of £50,000, child benefit is withdrawn proportionally on income between £50,000 and £60,000 and in full if the income is in excess of £60,000. The excess child benefit is collected through the tax system. You can cancel the Child Benefit but we do not recommend this course in case there is a sudden fall in income for whatever reason, as Child Benefit can only be backdated for three months.
© Thandi Nicholls Ltd 2023 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, S S Thandi and M S Bains cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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