Tax on Rental Income

By becoming a landlord, you’re setting up an ongoing financial source of income – the rental income you receive from tenants. You pay tax on rental income like any other monthly earnings.

You pay Income Tax on rental income. This has many names in the UK: landlord income tax, property income tax, buy to let Income Tax, etc. But these all refer to the Income Tax you pay on rental income.

You’re taxed on your net rental income - i.e. the profit you make. 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-only tax deductions.

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.

Income Tax Rates and Thresholds (2024 - 2026)

The tax rates for rental income are the same as personal income tax rates:

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

• If your total income (salary + rental income + other income sources) is less than £12,570, you pay no tax on rental income
• 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. 

Example 

• You earn a salary of £40,000 
• You also receive £20,000 in rental income 
• You deduct £5,000 in expenses from your rental income to reveal your net rental income of £15,000 
• These are your only sources of income 
• You add together your salary and net rental income to determine your total taxable income: £40,000 + £15,000 = £55,000 
• You fall within the higher rate tax band 

You’ll pay: 

• 0% on the first £12,570 = £0 
• 20% on the amount above £12,570 and up to £50,270 (£37,700 total) = £7,540 
• 40% on the remaining £4,730 above £50,270 = £1,892 
• Total Income Tax, including tax on rental income = £9,432 

Rental income is not taxed separately - it is added to your other sources of income, which determines your overall tax rate.

Example scenarios:

• Income below £12,570 = you pay 0% tax on rental income
• Income between £12,570 and £50,270 = you pay 20% tax on rental income
• Income between £50,270 and £125,139 = you pay 40% tax on rental income
• Income from £125,140 = you pay 45% tax on rental income

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 a buy to let allowable expense.

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.

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.

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.

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

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.

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.

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