How much is Landlord Tax?
How much tax you pay as a landlord all depends on the way your landlord business is set up and on other factors like how much other taxable income you have.
HMRC expects you to declare rental income if it’s over the property allowance and pay income tax on the profit.
As a landlord, you pay tax on your net rental income, which means your total income minus any allowable expenses.
HMRC will view multiple properties as one property business and work out your landlord tax bill based on your total rental income.
Landlords who don’t receive their rental income through a limited company are usually in one of these three tax positions:
- You don’t earn enough to pay any tax on your rental income.
- You pay tax on your rental income profits at a rate of 20%.
- Your pay tax on your rental income profits at a rate of 40% or above.
To maximise your tax efficiency as a landlord it’s essential to understand how tax on your rental income is calculated and the ways you can reduce your landlords tax bill.
What are tax deductible expenses for landlords?
HMRC gives landlords the option to deduct eligible expenses from their rental income which will reduce their taxable rental profit.
Landlords can only make use of allowable expenses that HMRC class as being incurred solely and exclusively for your property business.
Deducting allowance expenses from your rental income produces your net profit which is used to calculate how much tax is payable.
Tax deductible costs for landlords include:
- Letting agent fees.
- Other professional fees; for example accountant and legal costs.
- Landlord boiler cover.
- Landlord electrical cover.
- Landlord building insurance.
- Ground rent.
- Utility bills; energy and water.
- Council tax if your property is empty.
- Property maintenance and repairs.
This is not an exhaustive list and doesn’t include other costs that are directly connected to renting your property. For example: stationery, phone line, internet and advertising.
It is very important to be clear about the details of the allowable expenses you are claiming and keep HMRC compliant records of each expense.
For example, whilst you are allowed to deduct the cost of repairs and maintenance, this may not include expenditure on improvements to your property which instead may qualify as capital expenses and used to reduce capital gains tax when you sell the property.
Landlord mortgage tax credit
Restrictions apply to tax relief concerning mortgage interest and other financial expenses in relation to residential properties.
Mortgage interest relief for landlords is given at the basic income tax rate of 20% in the form of a tax credit.
The 20% mortgage tax credit is applicable after any income tax due has been calculated and you can carry forward any unused finance costs into future tax years.
Is a tenants deposit taxable?
Generally a tenants deposit does not count towards your taxable income when you initially receive it since it isn’t genuinely ‘your’ money because you’ll likely need to refund it if there are no arrears or damages at the end of the tenancy.
If you do need to deduct an agreed figure from a deposit then it becomes part of your taxable rental income.
Any remaining deposit that is returned back to the tenant should not be included though.
How is tax calculated on rental income?
To work out the profit or loss for your property rental business:
+ Add together all the rent received.
+ Add together all allowable expenses.
– Take away total expenses from total rent received.
– Take away any capital allowances.
= The result is the taxable profit or allowable loss.
Landlord tax bill example
As an example if you had £600 per month rental income and an annual salary of £25,000 the following would be applicable.
Assuming the property is held solely in your name, the net rental income is your sole tax burden.
If the property is in joint ownership, tax on the income will be split between you and your partner (typically 50:50).
In this example the gross rent is £600 per month without any allowable expenses being deducted.
The figures:
- £25,000 annual salary.
- £7,200 taxable rental income (£600 per month X 12 months).
- £32,000 total income.
- £1,440 tax payable on rental income (tax paid at the rate of 20%).
Your expenses incurred from the property are an important way of reducing any tax owed because they are deductible against gross rents received; what is left will be your taxable rental income.
If you run your rental business through a limited company which means any tax will be paid through the company as part of your corporation tax bill.
Different tax rates apply to limited companies which will be explained by your accountant or tax advisor when your company and personal tax returns are being completed.
Further information on being a landlord and your tax obligations is available in our landlord tax guide.
How can a landlord use a loss on rental income?
If you make a rental income loss, you can carry it forward and set it against profits from your other properties or future profits from the same property rental business in the following tax year(s).
A rental income loss cannot be set against other income streams for example employment or pension income under PAYE.
We have answered other popular landlord tax questions in our UK Landlord FAQs section.
Can you split property ownership to pay less tax?
If your income moves into the higher rate tax brackets it may be worth considering splitting the ownership of your property(s) with your partner if possible.
This can allow for a portion of the rental income to be taxed in your partners name at a lower rate of tax which in theory will reduce the overall tax paid on your rental income.
- If you be unmarried, your portion of the rental income will correspond to your ownership percentage of the property.
- If you are married or in a civil partnership, then you will need to divide the profits, expenses, and most allowances (excluding the personal allowance and the property income allowance) equally.
Landlord tax on other income
It is common for a landlord to have other types of income from sources like a pension or PAYE employment.
Your rental income profits are not taxed separately and instead added to any other taxable income you have to create a total taxable income figure.
All of your other income has to be included on the same tax return and adding both totals together can decrease the profitability of your rental income business because your overall income may breach the 40% or 45% income tax brackets.
Save money for your landlord tax bill
The amount of tax owed on rental income can vary from year to year with some years having very few costs and others with substantial costs which may mean you don’t even make a profit.
It is crucial to have a projection for how much your tax bill will be if you want to set money aside for the end of the financial year to pay it.
In a tax year where your rental income is bringing in a profit it can be prudent to retain some of the income to pay for any tax owed.
When is income tax due on my rental income?
Income tax is payable on the profits you generate from renting out property each tax year.
The tax year spans from the 6th of April to the 5th of April in the subsequent year and HMRC expects you to submit your self assessment tax return and settle your bill with HMRC by the 31 of January following the end of the year.
As an example if you earned rental income between the 6th of April 2024 and the 5th of April 2025, you are required to file your tax return and make payment to HMRC by the 31 of January 2026.
Paying tax on rental income and your tax code
Individuals who have both rental income and PAYE income at the same time should be aware that HMRC can try to include a rental income estimate in your tax code.
HMRC should not include a rental income estimate in your tax code if your previous self assessment tax bill was more than £3,000.
If your tax code includes an estimate for rental income it means that that your employer or pension provider will deduct more tax from you each time you are paid.
Adjusting your tax code in this way essentially means that you are paying tax on your rental through PAYE consistently during the tax year.
You can ask HMRC to not include or remove a rental income estimate from your tax code.
Landlord time to pay arrangement
For landlords that may not be able to pay their tax bill on time you can qualify for a time to pay agreement with HMRC.
Landlords can use an HMRC time to pay agreement to structure a payment plan that allows for the gradual settlement of the income tax owed within an agreed upon timeframe.
Using a time to pay arrangement with HMRC to distribute the cost of your rental income tax bill is a useful way to pay the tax you owe and remain compliant with HMRC’s guidelines.
Landlord property income allowance
For gross rental income below £1,000 you may be able to use the property income allowance which if applicable lets you earn up to the £1,000 threshold without declaring it to HMRC on a self assessment tax return.
Working out your gross rental income correctly is important to make sure you are using the property income allowance correctly.
Property income between £1,000 and £2,500
Typically as a property owner earning net rental income exceeding £2,500 annually HMRC requires that you to file a tax return that includes your rental earnings and expenses.
If your revenue from rental income falls between £1,000 (gross) and £2,500 (net) during the same period HMRC expects you to tell them so they can decide whether declaring this income via a tax return is mandatory or not.
In some cases (if you have income from PAYE) HMRC can include your rental income in your tax code meaning you’ll pay tax through PAYE instead and avoid having to complete a tax return.
Making tax digital for landlords
Making tax digital for landlords starts on 6th April 2026 for landlords with a combined annual earning from property and/or self employment surpassing £50,000.
For the affected landlords this new digital approach by HMRC will supersede the existing process of filing an annual self assessment tax return and how you pay tax on your rental income.
Landlords will be mandated to only use HMRC MTD compatible financial software to maintain digital business records and submit quarterly reports, a statement at the end of each period, and an annual final declaration to HMRC.
To make the transition as smooth as possible it’s a good idea to try and start keeping HMRC MTD compatible digital records before the start date.
Capital gains tax for landlords
Landlord capital gains tax refers to the tax imposed on the profit earned from the sale of a rental property that has experienced an increase in value.
When a landlord sells a rental property that has appreciated in value since its purchase, they become liable to pay capital gains tax (CGT).
The CGT is calculated based on the profit gained from the sale (minus the capital gains tax allowance) rather than the overall sale price of the property.
Landlords can reduce their CGT liability by using the cost of expenses associated with property improvements.
Allowable expenses for capital gains tax purposes differ from the regular rental property expenses that landlords claim on their annual tax returns.
Examples of improvement expenses may include installing a new roof or renovating a kitchen.
Can a landlord pay less tax by setting up a limited company?
A landlord should take into consideration the pros and cons of setting up rental properties in a limited company.
Setting up a limited company is not necessarily the best option for all landlords with there being many factors that could influence your decision.
Our guide for landlords and limited companies gives you some details on the subject which should also be discussed with your accountant so you can make an informed choice.
Rent a room scheme
The rent a room scheme is open to individuals who wish to rent out furnished accommodation in their primary residence to a lodger.
Rent a room is accessible to both homeowners and tenants, provided they have obtained permission from their landlord to rent out an extra room.
One significant advantage of the rent a room scheme is that you can earn up to £7,500 in tax free rental income per year, or £3,750 if the room is let jointly.
How do I contact HMRC about my rental income?
Not declaring your rental income on time and correctly may lead to HMRC penalties.
It’s recommend consulting with an accountant or HMRC should there be any ambiguity regarding how you should declare your rental income.
In cases where you can use the property income allowance or your rental income is below £2,500 you might not need to complete a tax return but you need to know when to contact HMRC and when to register for self assessment.
