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When you let out your property in the UK, you will normally be taxed on the profit from the rental, and not on the rent received. The amount due will depend on your overall income, tax band and the expenses/reliefs that you are able to claim against your rental income on your personal tax return. The first step in managing your tax situation effectively is to understand how the rental income tax works for landlords and this page outlines the basic rules in simple terms.
Yes, but the important word is profit. HMRC does not tax you on the gross rent your tenants pay. It taxes you on the profit that remains after you have deducted your allowable expenses. If your rental income is £20,000 and your allowable expenses are £5,000, you are taxed on £15,000, not £20,000.
That rental profit is added to all your other income for the tax year, such as salary, pension, dividends, and so on, and the combined total determines how much income tax you pay. This means the rate at which your rental profit is taxed depends on your overall income position. If your other income already uses up the basic rate band, your rental profit will be taxed at 40% or higher.
If a married couple or civil partners are co-owners of a property, the presumed position of HMRC is that any rental income is shared equally, 50/50, even if it is not really divided that way. If the beneficial ownership is indeed different and the couple wish to be taxed as such, they will need to file a Form 17 declaration with HMRC, accompanied by proof of the actual split of ownership. It is not just an income shift to the less successful spouse and an unaltered ownership of income.
Your rental income includes all amounts you receive in connection with the letting of the property. The most obvious element is the rent itself, the regular payments your tenants make under the tenancy agreement. But rental income also includes any additional amounts you receive in connection with the let, such as charges for services you provide alongside the accommodation, and any deposits you retain at the end of a tenancy because the tenant caused damage or failed to pay rent.
Security deposits that you hold and intend to return in full are not income and should not be included. Equally, if a tenant pays certain bills directly, council tax, utilities, those amounts do not pass through your hands and are not part of your rental income or expenses.
The calculation is very simple in its structure. Your total rental income minus your allowable rental expenses equals taxable rental profit. That profit is then included in your other income to calculate your total taxable income.
Worked Example
| Rental income | £18,000 |
| Allowable expenses | £4,500 |
| Taxable rental profit | £13,500 |
This £13,500 is added to any other income the landlord receives in the same tax year. The rate at which it is taxed depends on the landlord’s total income position.
It is also worth knowing about the property income allowance if you are letting your property to an unconnected party. If your total gross rental income is £1,000 or less in a tax year, it is exempt from income tax entirely. If your income exceeds £1,000, you can elect to use the £1,000 allowance in place of your actual expenses, though for most landlords with meaningful running costs, deducting actual expenses will produce a better result.
Allowable expenses are the costs you can deduct from your rental income before calculating your taxable profit. The overarching rule is that expenditure must be incurred wholly and exclusively for the purposes of the property rental business. The main categories of allowable expenses are as follows;
Repairs and maintenance cover the cost of keeping the property in its existing condition, fixing a boiler, repairing a roof, and redecorating between tenancies. The work must restore rather than improve; we return to this distinction below.
Letting agent fees are fully deductible, whether you pay a percentage-based management fee or a one-off tenant-find charge.
Accountancy fees are deductible where they relate to preparing your rental accounts or completing the property pages of your Self-Assessment return.
Landlord insurance, including buildings insurance, contents insurance, rent guarantee insurance, and legal expenses insurance, are allowable expenses where the policy relates to the rental property.
Service charges and ground rent are deductible when you, as the landlord, are liable to pay them, typically on leasehold properties.
Council tax and utilities are deductible for periods when you, as the landlord, are liable, most commonly during void periods or where the tenancy agreement makes you responsible for certain bills.
Replacement of domestic items, such as sofas, beds, white goods, curtains, and similar movable items, qualifies for relief when you replace an existing item with one of a broadly equivalent standard. This applies to furnished and part-furnished properties, but it does not cover the initial cost of furnishing a property from scratch.
Mortgage interest is one of the highest costs most landlords face, but it is treated very differently from the expenses listed above. Under the Section 24 rules that have applied in full since April 2020, individual landlords cannot deduct mortgage interest from their rental income when calculating their taxable profit. Instead, they receive a basic rate tax reduction worth 20% of their qualifying finance costs, applied after the tax on their rental profit has been calculated, not before.
This distinction matters enormously. A deduction reduces the income on which tax is calculated; a tax reduction merely reduces the final bill by a fixed percentage. For higher- and additional-rate taxpayers, this means the effective relief on mortgage interest is 20% rather than 40% or 45%, a real and permanent increase in tax compared to the rules that applied before 2017.
The capital repayment element of a mortgage payment is not allowable in any form; it is simply a reduction in the outstanding loan balance and has no tax relevance.
This restriction does not apply if the property is held in a limited company. A company can still deduct mortgage interest as a business expense in the normal way, paying corporation tax only on its net profit. This is one of the primary reasons why incorporation has become an increasingly common strategy for portfolio landlords, though the decision to incorporate involves a careful analysis of one-off costs, including capital gains tax and stamp duty land tax on transfer, against the ongoing tax savings.
Several significant property costs are not deductible against rental income, and it is important to understand why. The costs of acquiring a property — the purchase price, stamp duty land tax, conveyancing legal fees, building survey costs, and auction acquisition costs — are all costs of acquiring a capital asset. They may be relevant when calculating a capital gain on eventual disposal, but they cannot be offset against the ongoing rental income.
The cost of any capital improvement that increases the property’s value beyond the original standard are not deductible as a revenue expense. An extension, kitchen conversion (to a much higher specification than previously) and adding another room are all capital expenditure. The landlord’s personal labour cannot be offset; and the replacement of domestic items relief cannot be claimed for the initial cost of furnishing a property from scratch.
The table below summarises the key distinction between allowable and non-allowable costs.
| Allowable Against Rental Income | Not Allowable Against Rental Income |
|---|---|
| Repairs and maintenance | Purchase price of the property |
| Letting agent fees | Stamp duty land tax |
| Accountancy fees (rental-related) | Conveyancing legal fees |
| Buildings and contents insurance | Building survey costs (purchase) |
| Service charges and ground rent | Auction acquisition costs |
| Council tax and utilities (where landlord pays) | Capital improvements |
| Replacement of domestic items | Initial furnishing costs |
| Mortgage interest (as 20% tax reduction) | Capital repayments |
The rate at which your rental profit is taxed depends on your total income for the year, not just on the rental profit itself. Your rental profit is added to your other income — salary, pension, dividends — and the combined total is taxed after deducting your personal allowance. Income within the basic rate band is taxed at 20%, income in the higher rate band at 40%, and income above the additional rate threshold at 45%.
Because rental profit is added on top of other income, it often falls in the higher rate band even for landlords who would not consider themselves high earners, particularly if a full-time salary already uses up the basic rate band. The interaction between rental profit, total income, and the finance cost restriction means that the effective tax rate on rental income can be significantly higher than it first appears, and it is worth modelling the full picture rather than focusing on the rental profit in isolation.
In most cases, no. Rental income from a standard residential letting is treated as property income rather than trading income, and National Insurance contributions are not charged on it. The exception arises where the letting activity is carried on at a level and with a degree of service provision that crosses the line into trading — certain serviced accommodation arrangements, for example — in which case the income may be treated as trading profits and NIC may apply. For the vast majority of buy-to-let landlords, National Insurance is not a concern.
Landlords generally report rental income through their Self-Assessment tax return. If your gross rental income exceeds £1,000, or your net rental profit is taxable, you are required to complete a Self-Assessment tax return each year. If you are not already registered, you must do so by 5 October following the end of the tax year in which you first received rental income.
Landlord taxation may seem straightforward in principle but it can be complicated in practice given your personal circumstances. It is especially important to seek professional advice if you are a higher-rate or additional-rate taxpayer and are seeking to understand the full implications on your situation of Section 24, if you own property in a limited company and are keen to understand how Section 24 interacts with corporate tax, or if you are unsure whether you have incurred costs which were repairs or capital improvements.
Income tax for landlords is levied on profits, not gross rent. All rental expenses are deducted from the rental income to determine the taxable rental profit, which is included in your other income for the year. The mortgage interest is no longer classified as an “expense” deduction for an individual landlord; instead, it now provides a 20% tax reduction, and that’s more expensive for higher and additional rate taxpayers than the old deduction. It’s important to see the bigger picture, and to understand the interdependencies between rental income, total income, various thresholds, and various reliefs.
If you would like to explore any of these areas in more detail, our guides on how to work out your rental profit for tax, allowable expenses for landlords, and Self-Assessment reporting cover each topic in depth. Or if you would prefer to speak to a specialist directly, get in touch with our team.
Are landlords subject to a land rent tax?
Landlords are not taxed on their rental income; rather, the amount is determined after deducting allowable expenses from the rental income received.
How much rental income is tax-free?
Under the property income allowance, if your total gross income for the tax year is £1,000 or less, it’s not subject to income tax, providing the property is let to an unconnected party. Once that threshold is exceeded, tax is paid on the profit after deducting the allowable expenses.
What expenses can landlords claim?
Landlords can claim for repairs and maintenance, letting agent fees, accountancy fees, insurance, service charges, ground rent, council tax and utilities where the landlord pays for them, and the cost of replacing domestic items in qualifying circumstances.
For landlords, is the mortgage interest deductible?
Not as direct expense against the rental income. A 20% tax relief on finance costs is however available to individual landlords. Limited companies are not harmed and continue to take advantage of full mortgage interest deductibility.
Do landlords need to complete Self-Assessment?
In most cases yes. Individual landlords with taxable rental profits are required to report them through Self-Assessment each year, completing the UK property pages of their return. For limited companies, the rental profits are required to be included on their Corporation Tax returns.
This article is for general information purposes. UK Landlord Tax provides specialist tax advice for landlords across the UK. For tailored advice on your specific circumstances, get in touch with our team.
Simon Thandi
Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG
UKLandlordTax.co.uk is the trading name of Thandi Nicholls Ltd Accountants Registered Office: Creative Industries Centre, Glaisher Drive, Wolverhampton WV10 9TG.
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