Renting out property is a popular way to earn extra income. Whether you are letting a single flat, a family home or managing a portfolio of properties, you must understand the rules around rental income and taxation.
What is Rental Income?
Rental income includes more than just the rent your tenants pay each month. It also covers any payments received for:
- Utility bills (water, heating, electricity, internet)
- Cleaning of communal areas
- Repairs or general maintenance during the tenancy
- The use of furniture, white goods or other furnishings
You must report non-refundable deposits and any amounts you keep from returnable deposits at the end of a tenancy as rental income. If you keep part of a deposit for damage, you must treat the amount kept as income and claim the actual repair cost as an expense.
How Rental Income is Taxed
HMRC taxes you on the profit you make from letting property. Your profit is the difference between your total rental income and your allowable expenses. If you let multiple properties, you can combine the figures to calculate your overall profit or loss.
Income Tax Bands (2024/25):
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Your rental profit combines with your other income sources, such as employment or pensions, and may push you into a higher tax bracket.
Tax on Jointly Owned Property
If you jointly own a rental property, you usually split the income based on your ownership shares. Married couples and civil partners usually split the tax 50/50 unless they declare a different ownership share to HMRC, by submitting Form 17 with evidence of actual ownership shares. Other joint owners share the profits according to the terms of their ownership agreement.
The Furnished Holiday Lettings regime ended on 6th April 2025, so all properties are taxable under standard rental rules.
Cash Basis vs Traditional Accounting
Most landlords report rental income and expenses using the cash basis when they receive or pay money. This method is easier to manage and helps avoid complex calculations. If you prefer the accruals method (traditional accounting), you can opt out of the cash basis by ticking the appropriate box on your tax return.
Since 6th April 2024, cash basis has been the default for unincorporated landlords, but you can choose the accruals method by opting out.
Claiming Allowable Expenses
To reduce your taxable profit, you can deduct the following expenses:
- Routine repairs and maintenance (fixing leaks, broken windows)
- Cleaning and gardening services
- Landlord insurance (building, contents, public liability)
- Utility bills and Council Tax (if you pay them, not the tenant)
- Letting agent and management fees
- Legal costs for short-term lets or lease renewals
- Accountant fees
- Advertising costs to find tenants
- Phone, stationery and mileage expenses for property visits
Only costs used Wholly and Exclusively for your rental business are deductible. If an expense has a personal element, you can only claim the portion used for your rental business.
Alternatively, you may claim the £1,000 Property Allowance instead of expenses, if more beneficial. However, you cannot claim both or the allowance if the income comes from a connected company or partnership.
Mortgage Interest Tax Relief Changes
As of April 2020, landlords no longer deduct mortgage interest directly from their rental income. Instead, they receive a 20% tax credit on mortgage interest and related finance costs. This rules applies to:
- Individual landlords (UK and non-UK residents)
- Property partnerships
- Trustees
Limited companies remain unaffected and can still claim the full mortgage interest as an allowable expense.
Relief for Replacing Domestic Items
You can claim relief for replacing items such as:
- Furniture (sofas, beds, wardrobes)
- Furnishings (carpets, curtains, rugs)
- Appliances (fridges, cookers, washing machines)
- Kitchenware (pots, pans, cutlery)
This relief applies only to replacements, not the initial purchase. If you upgrade (such as replacing a standard sofa with a sofa bed), you can only claim the cost of a like-for-like replacement. You must also deduct any proceeds from selling or part-exchanging the old item, and can include incidental costs of buying or disposal.
When and How to Report Rental Income
You must report your rental income through a Self Assessment tax return if:
- Your total income from property is over £10,000 (before expenses), or
- Your net rental income (after expenses) exceeds £2,500
Deadlines:
- Register by 5th October following the end of the tax year
- File a paper return by 31st October
- File an online return by 31st January
Missing these deadlines may result in fines or interest charges.
Dealing with Rental Losses
If your allowable expenses are more than your income, you will make a loss. You can carry this forward and offset against profits from the same rental business in future years. However, you cannot use these losses to reduce income from other sources.
You can only deduct losses from uncommercial lets (such as renting below market value to family or friends) up to the amount of rental income you receive. You cannot carry forward these uncommercial excess expenses.
Selling a Property and Capital Gains Tax
If you sell a rental property that isn’t your main residence, you may owe Capital Gains Tax. The current rates are:
- 18% for basic-rate taxpayers
- 24% for higher and additional-rate taxpayers
You must report and pay any Capital Gains Tax within 60 days of the property sale. This period runs from completion and you must report it to HMRC if tax is due. Keep all receipts and records related to purchase, improvements and sale costs to reduce the gain.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.