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Learn about tax on rental income and how property investors can reduce their buy-to-let, landlord tax liabilities.
Written by
Ben Luxon
PUBLISHED ON
Dec 8, 2024
Working out your end of year tax for your property income can get a little complicated. You need to know what counts as rental income, what costs are deductible, which tax bracket you are in, and potentially even contend with capital gains.
And true to fashion, the HMRC, whilst publishing a fair amount of documentation on the topic, have not made it entirely clear. That’s why we have collated all the information you need to know about landlord tax and understanding tax on rental income.
Landlords must pay income tax on any rental income earned from their investment properties. This tax for landlords has many names such as landlord tax, property income tax, buy-to-let income tax. However, all of these refer to the same thing.
At the end of the year, landlords must declare the total net income from all their income sources.
Tax on rental income is owed on the net rental income (which is the overall profit that you make in that year). To calculate the net profit and owed landlord tax, you need to first calculate your gross profit, this is the total income received from the properties in your portfolio, and then subtract the total allowable expenses.
It’s important to note that as MTD is phased in 2026, landlords with a gross income of over £50,000 pounds will be required to submit quarterly tax returns using a compliant digital bookkeeping system. This threshold will be reduced to £30,000 in 2027 with plans to lower it further in the following years.
Note: Landlord Studio will be MTD compliant before the 2026 deadline.
Essentially, any income from your rental property is taxable at your standard income rate.
Your rental income is primarily the rent you receive. However, it more broadly covers all payments from tenants – even if they are expenses and you make no money from them.
For example, you might offer a cleaning service that you outsource but the tenant pays through you. In this example, you would have to log the tenant payment as a rental income and then expense the cost.
Aside from the rent itself, rental income could include any of the following costs or fees associated with:
All of the income from these classes needs to be declared at the end of the year. However, many of these can be deducted as allowable expenses. So, it is important to keep accurate and detailed records of all the income, where it came from, and track rental expenses with a tool like Landlord Studio to make sure that you do not end up overpaying your taxes.
If you charge a non-refundable deposit, this also will need to be counted as income as will any money that is kept to cover damages at the end of the tenancy from a returnable deposit. You will then add the costs of damages to your expenses afterwards.
Read: A Landlords Guide to Fair Wear and Tear and Replacement of Domestic Item Relief
The landlord tax that you pay is determined by the rate at which you can pay your regular income tax for that year. Often, as a landlord, you will receive income from a variety of sources such as your regular job as well as investments, and your buy-to-let properties. You need to be meticulous when you calculate your total income if you want to work out exactly how much tax is due.
The income tax rates and thresholds for your rental income are the same as those of your personal income. However, be aware adding your net rental income to the other income you receive may push you over your usual tax threshold and into a new entire band.
Note: The UK government has announced that income tax rates will remain frozen until the 2028/29 tax year.
Source: Gov.uk Income Tax Rates
A landlord charges £1,000 pm in rent. This includes the tenant’s utility bills of £50/pm. This whole amount, despite a portion of it being paid straight to utility companies, would need to be logged as taxable income.
The costs to utility companies would then be added to your expenses and deducted at the end of the year.
If at the end of the tenancy, the tenant agrees for £500 of their deposit to be used to cover repairs to the property, this would also count towards the rental income.
So the rental income might be £12,000 for the year. But you would include the utilities they pay of £600 annually, plus the deposit that is kept to cover damages, in this case, £500. Making the total income you would declare for that tax year £13,100.
You would then deduct the utilities and repair costs as expenses against this declared income.
You must declare your rental income after the end of the tax year. The tax year runs from the 6th of April to the 5th of April.
The deadline for making a paper tax return is 31 October. For an online return the deadline is 31 January the following year.
From 2026 this will be changing as the Government pushes their new Making Tax Digital scheme to landlords and self-employed individuals. You will be required to keep digital records and submit quarterly returns as well as your end of year tax return.
The HMRC has made the process of declaring and paying tax for your buy-to-let property reasonably simple and it can all be done online. How exactly you need to go about it though depends on the amount of taxable income you receive.
As we’ve mentioned already, landlords are taxed on the net rental income. The HMRC has strict tax rules regarding income from rental properties, and whilst there are several landlord tax relief's available, such as the Replacement of Domestic Items Relief, there are limits as to what you can claim as an allowable expense.
The first thing to bear in mind is you have a £1,000 tax free property allowance. If you have less than £1,000 in rental income you don’t have to declare. If your rental income amounts to more than £1,000 though you must complete a self-assessment tax return.
You must also choose between receiving the property allowance or deducting the allowable expenses from your rental income. Generally speaking, if the expenses for your rental income equal more than £1,000 you are better off deducting the individual expenses. But if your expenses are lower than £1,000, then you can simply take the full allowance, and get a slightly larger chunk of tax free income.
Find out more about Landlord Studio for income and expense tracking →
There are five main categories of allowable expenses for buy-to-let property that can be leveraged to reduce landlord tax. Landlords need to accurately track these records throughout the tax year to maximise their claims and increase ROI. Landlord tax deductible expenses include:
Whilst many of the costs incurred running your rental property are allowable expenses, not all are some that aren’t include:
If you have more than one property, all rental income and expenses can be lumped together. So expenses on one property can be deducted from the income as a whole, not just against that property.
This becomes important if you declare a loss on a property. However, it’s important to note, that if you own properties personally, as well as a share of a company that profits from letting out properties these will be treated as separate rental businesses. You won’t be allowed to offset the costs of one against the other.
Similarly if you own properties overseas these will be treated separately too. There’s a separate section in your tax return for declaring profits from overseas property.
In order to accurately declare your net rental income for the year you need to have a good system in place to track your income and allowable expenses. Additionally, using a digital system like Landlord Studio will not only allow you to understand your taxes better but to gain a deeper, more nuanced overview of your financials as a whole, allowing you to optimise profitability and cash flow.
Landlords Studio is a property management software designed to help landlords track income and expenses. With it, you can connect your bank accounts and reconcile the income and expenses directly from your bank feed.
Plus, securely store and organise supporting documents like receipts using the built-in receipt scanner. And instantly generate any of over 15 customisable reports including a Profit and Loss statement, as well as a range of financial and property management summaries.
Keep accurate and up to date digital records of your rental property finances, ensure compliance with strict landlord regulations including the upcoming MTD changes, and make tax time easy. Create your free Landlord Studio account today.
There are some ways to reduce your tax burden, one of which is by setting your properties up under a limited company. Before doing this make sure to consult with a financial advisor to ensure that this will actually save you money as setting up a limited company comes with a variety of responsibilities and expenses.
When you set up a limited company for your rental income you no longer pay income tax, instead, you pay corporation tax. The HMRC doesn’t take your personal income into account when determining the rate at which you’ll be charged corporation tax as it’s a fixed rate.
The main rate of corporation tax is 25% for the financial year beginning 1 April 2024 (previously 19% in the financial year beginning 1 April 2022). In addition, from 1 April 2023 onwards, a 19% small profits rate of corporation tax was introduced for companies whose profits do not exceed £50,000.
There is also a little bit more flexibility with the expenses that you can claim on a limited company buy-to-let since it’s considered a business rather than an investment.
Read: Should You Invest In Property As A Limited Company
Landlords are required to file a self-assessment tax return at the end of the year and declare all of their income and claim all of their allowable expenses, the HMRC will then use these figures to determine how much tax you need to pay, and how much National Insurance.
You must keep all the receipts and documentation for any claimed expenses or work you’ve had done on a property as the HMRC may request to view it. It’s important to note that this system is changing. And the HMRC will be rolling out Making Tax Digital for landlords, for the tax year starting April 2026 all landlords, earning above the £50,000 threshold.
You can learn more about Making Tax Digital here.
If you provide a service that isn’t normally offered by a landlord this may be counted as a trading service. For example, you offer:
This income will be treated separately to the rental income.
If you run a B&B or Hotel then the whole of your income will be treated as a trading income. You can find out more here.
If you rent out a furnished room in your own home you can claim rent-a-room relief (even if you’re trading). Find out more about rent a room relief here.
If you declare a loss on your property’s income you can set that against future rental income tax.
For example, if, due to various deductible expenses and vacancies, your rental income comes to £6,000 for the year 2023-24, but your expenses come to £8,000 meaning you can declare a loss for the property of £2,000.
The next year, 2024-25, you have increased occupancy and after expenses make a profit of £4,000. You could deduct the previous year’s loss from that income meaning you’d only have a total of £2,000 in taxable rental income for that year.
If in this example, you only made £1,000 of profit for the tax year 2024-25, you could carry the remaining £1,000 of losses over to the next tax year 2023-24 as well.
When you sell a rental property you will usually have to pay capital gains tax (CGT). Different rules apply if the property has been your home.
The sale of your rental though will be treated in the same way as the sale of any other asset. As it stands you’ll currently either pay 18% (if you’re a basic-rate taxpayer) or 28% (if you’re a higher additional-rate taxpayer).
You will need to pay tax on any profits. For example, you bought a house in 2010 for £150,000. And sold it in 2018 for £200,000, you would be liable to pay CGT on the £50,000 of gains made.
However, capital gains taxes on the sale of property are expected to change yet again over the coming years so it’s a good idea to keep a close eye on this in the coming years.
Tax on rental income needs to be paid by 31st January online after the end of the tax year of the sale. For more details on capital gains tax, read our guide to capital gains tax on rental properties
There are several other tax considerations when dealing with your buy to let properties. These include
Staying ahead of tax obligations is a crucial aspect of being a successful property investor. With the introduction of Making Tax Digital (MTD) in April 2026 for landlords earning over £50,000, financial compliance will become even more demanding. Landlord Studio is a powerful landlord software designed to help you navigate these changes and maximise your tax efficiency.
With powerful features like bank feeds, you can effortlessly track income and expenses, ensuring you never miss an allowable deduction. The receipt scanning and digitisation tool makes it easy to store and organize proof of expenses, meeting HMRC’s requirements for digital record-keeping. These tools not only save time but also reduce the risk of errors that could lead to penalties.
By leveraging Landlord Studio’s advanced functionality, landlords can not only stay compliant with landlord tax regulations, but the ever evolving regulations around health and safety and tenant management as well. Whether you are managing a single property or a portfolio, Landlord Studio simplifies tax preparation, making it easier to focus on growing your investments. Take control of your finances and ensure compliance with MTD, create your free Landlord Studio account today.
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