Tax implications of rental income in the UK

What is rental income?

Rental income is the money you receive from tenants when you let out your property. This can include residential properties, commercial spaces, or even holiday rentals. Whether you're a full-time landlord or just renting out a single property, the income you earn is subject to UK tax rules and must be declared to HMRC.

How is rental income taxed?

In the UK, rental income is treated as part of your overall income and is subject to Income Tax. The amount of tax you’ll pay depends on your total income for the tax year, including your rental income and any other earnings. Here's how the tax bands for the 2023/24 tax year break down:

• Personal allowance: Up to £12,570 – 0% tax.

• Basic rate: £12,571 to £50,270 – 20% tax.

• Higher rate: £50,271 to £125,140 – 40% tax.

• Additional rate: Over £125,140 – 45% tax.

Example:

If your total income, including rental income, is £45,000 for the year, you’ll pay 20% tax on the portion of your income above the Personal Allowance.

Deductions and allowances

One of the key benefits of being a landlord is the ability to deduct certain expenses from your rental income, reducing your taxable profit. Here are some of the main deductions you can claim:

1. Mortgage interest

Although the rules have changed in recent years, you can still claim a 20% tax relief on mortgage interest payments.

2. Property maintenance and repairs

Costs incurred for necessary repairs and maintenance to keep the property in good condition are deductible. This includes things like fixing a broken boiler or repainting walls.

3. Letting agent fees

If you use a letting agent to manage your property, their fees are deductible.

4. Insurance

You can deduct the cost of insuring your property, including landlord liability insurance.

5. Utilities and council tax

If you cover the cost of utilities or council tax for the property, these can be deducted.

6. Other allowable expenses

These can include advertising for tenants, legal fees for drawing up leases, and accountant fees related to the property.

The rent-a-room scheme

If you rent out a room in your home, you may be eligible for the Rent-a-Room scheme, which allows you to earn up to £7,500 per year tax-free. If you earn more than this, you’ll need to complete a self-assessment tax return.

Filing a self assessment for rental income

If your rental income exceeds the £1,000 Property Income Allowance, or you’re already filing a self-assessment for other reasons, you’ll need to report your rental income to HMRC. Here’s a step-by-step guide to help you through the process:

1. Register for self assessment

If you’re not already registered, you’ll need to do this first. You can register online, and HMRC will send you a Unique Taxpayer Reference (UTR) number, which you’ll need to file your return.

2. Calculate your rental income

Add up all the rent you’ve received during the tax year, making sure to include any other payments from your tenants, such as utility bills.

3. Deduct your expenses

Use the deductions mentioned above to reduce your taxable rental income.

4. Complete the self assessment tax return

You’ll need to declare your rental income under the “UK property” section of the self-assessment form. If you have multiple properties, you’ll report the combined income and expenses.

5. Submit and pay

The deadline for online submissions is 31st January following the end of the tax year (e.g., 31st January 2025 for the 2023/24 tax year). Make sure to pay any tax due by this date to avoid penalties.

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Understanding the tax implications of rental income is crucial for every landlord in the UK. By familiarising yourself with the relevant tax bands, deductions, and allowances, you can minimise your tax liability and stay compliant with HMRC’s requirements.

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