Tax on Rental Income and Landlord Tax

UK landlord tax comes in different forms: Stamp Duty Land Tax, Capital Gains Tax and Income Tax. These are the main 3. But you don’t pay them all at once.  

Stamp Duty you pay on the initial property purchase and you’re charged Capital Gains Tax when you sell an investment property.  

You pay Income Tax on the rental income you receive from a buy to let property.

If you get a buy to let via a limited company in the UK, you pay Corporation Tax on the rental income instead of Income Tax. You can find more information on this below.

You can also compare limited company buy to let mortgage rates with our free best buys tool if you'd like to know more this kind of setup.

Note: the Financial Conduct Authority does not regulate some forms of buy to let mortgages.

Yes, you do pay tax on rental income in the UK. There isn’t a separate tax just for landlords - it’s simply Income Tax, the same tax most people pay on the money they earn. 

You might come across terms like landlord tax, property income tax, or buy to let tax, but these are just different ways of referring to the same thing: Income Tax on your rental earnings.

You’re taxed on your net rental income - i.e. the profit you make as a landlord. This is calculated by adding together all the rental income you receive from various properties and then subtracting any rental Income Tax allowances, relief or allowable expenses (total rental income minus property allowance or allowable expenses).

See Buy to Let Allowable Expenses below for more information on those landlord tax deductions.

To calculate your tax on rental income, use the personal Income Tax rates:

Here’s some important information about paying tax on rental income:

• Your Income Tax band determines how much tax you’ll pay on rental income in a given year. Since rental income is added to your total taxable income, it may push you into a higher tax band
• If your total income is above £100,000, your personal allowance is reduced by £1 for every £2 over this amount
• If your total income exceeds £125,140, you do not get a personal allowance at all, meaning all income is taxable

Note that from 2028 - 2029, the Income Tax thresholds will likely be uprated in line with inflation.  

The main types of property ownership that can affect the Income Tax you pay include the following:

• Sole ownership - if you own the rental property by yourself, you’ll pay Income Tax on the whole income from that property
• Jointly-owned property - if you own a rental property with other people, you’ll pay Income Tax on the property’s income relative to your share in the property. If you jointly own some properties and solely own other properties, the income is counted as one business for tax purposes 
• Property jointly-owned with a spouse or civil partner - if you own a property with your civil partner or spouse, you will usually be taxed as if you own equal shares of the property. If you own unequal shares, you will need to demonstrate and provide proof of this to HMRC in order to pay the correct tax 
• Owning property through a company - if you own property through a limited company, you’ll be liable for Corporation Tax on the profits not Income Tax

Landlords are taxed on their net rental income - i.e. the profit left over when you subtract your property allowance or allowable expenses from the total amount you receive in rent. HMRC have strict tax rules on the income from rental property, so there are limits as to what you can claim as an allowable expense.

Yes you still have to pay tax on rental income if you have a buy to let mortgage. However, you receive Income Tax relief in the form of a 20% tax credit.

You may still need to pay tax on your rental income, even if it’s your only source of income. In the UK, all rental income must be declared to HMRC, and it's treated as part of your overall taxable income. 

However, there is a personal allowance – currently £12,570 per year – which means you won’t pay any Income Tax if your total income (including income that’s only made up of rental income) falls below that threshold. If your total income exceeds this amount, then you’ll likely have to pay Income Tax on the portion above the allowance. 

It’s also worth noting that you can deduct certain allowable expenses, like letting agent fees, maintenance costs and insurance, which can reduce the amount of tax you owe.

If you own multiple rental properties, the income from all properties is typically combined to determine your total rental income. Expenses from one property can often be deducted from the income of another, which can help in reducing your taxable income. Here are key points:

• Keep detailed records for each property
• Aggregate income and expenses to calculate the total taxable amount
• Use the total net profit or loss across all properties in your tax calculations

Tax for overseas property rentals is largely handled in the same way as UK property rentals. If you live in the UK and are domiciled in the UK, it’s likely you’ll have to pay Income Tax on your income from overseas properties. If you’re not a UK resident, you won’t have to pay UK Income Tax on this rental income. This includes if you’re in the UK but your permanent home or domicile is overseas. 

Depending on your circumstances, you might have to pay tax to the country from which you gain the income as well as pay UK Income Tax. You can look into Foreign Tax Credit Relief to reduce how much tax you have to pay. If you have rental properties in the UK as well as overseas, it is highly advisable to get professional advice from a tax adviser or accountant.

If you rent out a room in your home, you might not have to pay tax - thanks to the Rent a Room Scheme. 

Under this scheme, you can earn up to £7,500 per year tax-free by renting out a furnished room in your main residence. If you share the income with someone else (like a partner), the allowance is split - so you each get £3,750. 

If your rental income goes over the threshold, you’ll need to declare it and may have to pay tax on the excess. You can either deduct actual expenses or opt into the scheme and claim the tax-free allowance - it’s up to you which is more beneficial. 

Just remember: the scheme only applies if it’s part of your main home and the space is furnished.

Yes, if you’re charging rent - even to a family member - you may need to declare that income to HMRC. 

It doesn’t matter who the tenant is; if they’re paying you to live in your property, it’s considered rental income and could be taxable. You’ll need to report it on your Self-Assessment tax return, just as you would with any other tenant. 

However, there’s a bit of a grey area. If your family member is just contributing to household bills or giving you a token amount that’s well below market rent, HMRC might not treat it as taxable income. But if it's more formal - like a regular rent payment - it’s safer to declare it. 

When in doubt, it’s always best to keep records and speak to an accountant or tax adviser.

Yes, you might still need to declare your rental income even if you haven’t made a profit. 

HMRC is interested in your rental income, not just your profit. If your income from property exceeds £1,000 in a tax year (known as the property allowance), you’re required to declare it - regardless of whether your expenses have wiped out any profit. 

The good news is, if your allowable expenses (like letting agent fees, repairs, or mortgage interest) are higher than your rental income, you may not owe any tax. But you’ll still need to report it on a Self-Assessment return to show HMRC that you’ve made a loss. 

That loss can sometimes be carried forward and offset against future rental profits, so it’s worth declaring even if you haven’t made any money yet.

The process of paying tax on buy to let property income depends on the amount of rental income you receive. 

If you: 

• Earn less than £1,000 a year in rental income - you don’t have to report it to HMRC unless you choose to claim expenses instead of the £1,000 property allowance 
• Earn between £1,000 and £2,500 a year in rental income - you should contact HMRC to check whether you need to complete a Self-Assessment tax return or if the tax can be collected via your tax code 
• Earn between £2,500 and £9,999 after allowable expenses, or over £10,000 before allowable expenses - you must register with HMRC and file a Self-Assessment tax return to report your rental income 

It’s important to keep accurate records of your income and allowable rental expenses from rental properties. These should be split into your income from different categories, such as overseas properties, UK properties, fully-furnished lettings and unfurnished/part-furnished lettings.

You should make sure you have all relevant evidence of the property - such as rent books, receipts, invoices, bank statements and mileage logs. If you don’t have this evidence, you could be charged a fine when it comes time to pay tax on rental income.

Tracking allowable expenses is crucial for reducing your taxable rental income. Best practices include:

• Maintain a dedicated bank account for all rental income and expenses
• Use digital tools or accounting software to record and categorize expenses
• Keep receipts and documentation for all allowable expenses - such as repairs, maintenance, property management fees, insurance, etc.
• Regularly update your records to avoid last minute tax filing stress
• Consult with a tax professional to ensure all potential deductions are identified

Looking for tips on how to avoid landlord taxes isn’t the best idea, as the suggestions you’ll find are usually unreliable and more risk than they’re worth. Instead, make yourself aware of the allowances that suit your situation and discuss tax-efficiency with your accountant. You may learn how to pay less in tax on rental income than you first thought.

If you don’t declare and pay tax on your rental income, HMRC can charge you penalties, interest, and even investigate further if they believe you're deliberately avoiding tax. 

Sometimes it’s a simple oversight - but whether it’s accidental or intentional, you’re still responsible for making sure your rental income is reported correctly. If HMRC discovers undeclared income, they can go back several years, and the longer it’s been unpaid, the higher the penalties could be. 

However, if you realise you’ve missed something, there’s a way to come clean. The Let Property Campaign is a scheme that lets landlords voluntarily disclose unpaid tax and often settle with lower penalties than if HMRC finds out first. 

Being upfront is almost always better than waiting to be contacted.

HMRC has more ways than you might think to find out about undeclared rental income. 

They use a mix of data sources, including information from letting agents, land registry records, and even online property platforms like Airbnb or SpareRoom. Mortgage applications, Council Tax records, and bank account activity can also raise red flags if something doesn’t add up. 

On top of that, HMRC runs sophisticated data-matching software and receives anonymous tips - so even if you're renting informally or to friends and family, there's still a chance they'll find out. 

If you’re earning from property, the safest option is to declare it properly. If you've not done so yet, the Let Property Campaign is a way to sort things out with reduced penalties before HMRC contacts you first.

Although you only pay Income Tax on the house rent received each month, there are other taxes you may have to pay at some point during your landlordship. It all depends on your circumstances.

Some landlords find it more tax-efficient to purchase a buy to let property through a limited company, as the taxation of rental income differs from that of personally owned properties. 

You do not pay personal Income Tax on rental property owned through a limited company. Instead, the company pays Corporation Tax on its profits. HMRC does not consider your personal income when determining the Corporation Tax rate, as it applies at the company level. 

Corporation Tax rates for 2024/25: 

• 19% for profits up to £50,000 
• 25% for profits over £250,000 
• Marginal relief applies for profits between £50,000 and £250,000, meaning the effective rate is between 19% and 25%, depending on profit levels 

This structure can sometimes be more tax-efficient, which is why many landlords consider using a limited company. 

Additionally, landlords operating through a limited company may have greater flexibility in claiming allowable expenses, as the property is considered a business asset rather than a personal investment. 

Find out more in our guide: How Does a Buy to Let Limited Company Work?

For advice on landlord tax relief and tax efficiency, consult a qualified accountant.

As a landlord, you won’t pay the Council Tax on your buy to let properties unless they’re unoccupied. Council Tax is usually the responsibility of the tenant, but you may be liable if they leave. You can claim buy to let Council Tax as an expense when you complete your self-assessment tax return.

When you sell a rental property, you may be liable to pay Capital Gains Tax (CGT) on the profit.

Key points to remember include:

• Calculate the gain by subtracting the property's purchase price from the sale price. You then take this figure and deduct any allowable expenses (such as agency fees and property improvements) and the CGT allowance. This give you the amount of capital gain you will pay tax on
• Check if you qualify for any CGT reliefs or exemptions
• Report the sale on your tax return and pay the due tax within the specified timeframe
• Keep all documentation related to the purchase, improvement, and sale of the property to substantiate your calculations