Rental Income Tax: A Landlord’s Guide to Taxable Rental Income in the UK

As a landlord, you have to pay various types of taxes subjected to your properties. 

One of these taxes is subjected to rental income as well. All rental income that you earn from your UK properties is taxable and has to be reported to HMRC through the Self-Assessment system. 

Whether you’re a first-time landlord or an experienced property investor, understanding your tax obligations is crucial to avoid penalties and ensure compliance.

Key Tax Responsibilities for Landlords:

There are some key responsibilities for landlords when it comes to paying taxes the right way.

• Declaring all rental income – Including rent payments, retained deposits, and service charges
• Claiming allowable expenses – To reduce your taxable profit legally
• Paying Income Tax – At rates of 20%, 40%, or 45%, depending on your earnings
• Meeting deadlines – Late tax returns can trigger £100+ fines and interest charges

HMRC has increased its focus on property income, hence it is important to get your tax affairs right from the start, as it helps to prevent costly mistakes. 

This guide will explain exactly what counts as taxable income, what deductions you can claim and how to stay compliant with HMRC regulations.

What Counts as Taxable Rental Income?

It may seem like being a landlord is different from being self-employed but since rental income doesn’t get taxed at source (through PAYE), you’ll still need to fill in and submit a Self Assessment tax return to HMRC. 

In regards to this, below are all the types of rental incomes that are taxable.

1. Rent Payments

• The full amount of monthly rent received from tenants
• It includes fixed-term and rolling contract payments
• It applies to all property types (residential, commercial, holiday lets)

2. Non-Refundable Deposits

• Security deposits kept for damages or unpaid rent
• Administration fees charged to tenants (e.g., for references)
• Pet deposits if retained

3. Tenant-Paid Utilities & Bills

If tenants pay you directly for:

• Council tax
• Water bills
• Electricity/gas (unless reimbursing exact amounts)

4. Service Charges & Additional Fees

• Cleaning/maintenance fees
• Furniture rental charges
• Service charges (e.g., for communal areas in flats)

5. Subletting Income

• Earnings received from renting out rooms (unless covered by Rent-a-Room Relief)
• Income from subletting part of your property

6. Government Housing Payments

• Housing Benefit paid directly to you
• Local Authority housing scheme payments

Key Exception: Refundable deposits (returned in full) are not taxable.

Pro Tip: It is advised to keep detailed records – HMRC can request proof of income/expenses for up to 6 years.

What Rental Income Is Not Taxable?

While most rental-related payments count as taxable income, HMRC has made some important exceptions for landlords. 

Here are the types of rental incomes on which what you don’t need to pay tax:

1. Refundable Security Deposits

• Full deposits returned to tenants at the end of tenancy
• This only becomes taxable if retained for damages/unpaid rent

2. Genuine Damage Payments

• Tenant payments used solely to repair actual damage to the property
• The amount must be directly spent on repairs (keep receipts as proof)

3. Rent-a-Room Relief Income

• First £7,500/year tax-free for renting furnished rooms in your main home
• This applies to live-in landlords (claim via Self-Assessment)

4. Reimbursed Expenses

Exact repayments from tenants for:

• Utility bills (if you pay first and tenant repays same amount)
• Emergency repairs (tenant covers cost directly)

5. Capital Receipts

Deposit deductions that cover:

• Replacement of worn-out furniture (treated as capital expense)
• Property improvements (different from repairs)

6. Insurance Payouts

• Property insurance claims made for damages and losses
• Contents insurance payments for tenant damage

Key Rule: The payment must not represent profit or income. Always document non-taxable amounts in case HMRC enquiries.

Pro Tip: Use HMRC’s Property Income Manual (PIM) for complex cases. 

How Is Rental Income Taxed?

In the UK, rental income is taxed on your profit rather than your gross rent. Put simply, profit is the sum left once you’ve added together your rental income and deducted any expenses or allowances.  

It is calculated as:

(Total Rental Income – Allowable Expenses = Taxable Rental Profit)

2024-25 Tax Rates for Rental Income

As a landlord you have to pay tax on any rental income you receive. This amount of tax to be paid depends on your earnings and the tax rates apply to your income level.

For the 2024/2025 tax year, these are the tax bands:

• Personal Allowance: £12,570 (no tax is paid on any income before this threshold)
• Basic Rate (20%) – applies to income between £12,571 and £50,270
• Higher Rate (40%) – applies to income between £50,271 and £125,140
• Additional Rate (45%) – applies to income over £125,140

Example: If your rental profit is £30,000 and you earn £45,000 from employment:

• First £5,270 of rental profit taxed at 20%
• Remaining £24,730 taxed at 40%

Self-Assessment Deadlines & Penalties

• Self-Assessment tax returns need to be registered by 5 October after the tax year ends (6 April – 5 April).
• The deadline to file online is by 31 January following the tax year.
• All the taxes should be paid by 31 January.

Late penalties:

• £100 fine if you are 1 day late.
• Additional £10/day after 3 months (up to £900)
• 5% of tax due + interest if you are late for more than 6 months 

How to Report Rental Income to HMRC

All UK landlords must declare rental income to HMRC – whether you rent out a single property or multiple homes. 

The process involves registering for Self-Assessment, reporting your profits, and paying any tax due by the deadlines.

Step-by-Step Guide to Self-Assessment

1. Check if You Need to Register

You must report rental income if:

• Annual gross income exceeds £1,000 (before expenses)
• You’re a higher-rate taxpayer (even if below £1,000)
• You receive other untaxed income (e.g., self-employment)

2. Register for Self-Assessment

• Online: you need to register yourself at HMRC Self-Assessment registration
• Deadline: You must register for Self-Assessment by October after the tax year ends (e.g., by 5 Oct 2025 for 2024/25 tax year)
• You’ll receive a Unique Taxpayer Reference (UTR) within 10 days of registering.

3. File Your Tax Return

To declare rental income, you must complete the SA100 Self Assessment form and the SA105 supplementary form for property income.

This Includes:

• Total rental income
• Allowable expenses
• Mortgage interest (if applicable)
• Deadline: The deadline for online filing is 31 January following the tax year

4. Pay Your Tax Bill

• The payment deadline is 31 January (same as the filing deadline).
• Late payments incur 5% interest + penalties

Making Tax Digital (MTD) for Landlords

• From April 2026, landlords having rental income of more than £50,000 must:
• Use MTD-compatible software (e.g., QuickBooks, Xero)
• Submit quarterly digital updates to HMRC
• File an end-of-period statement (EOPS)

How Heighten Accountants Can Help You With Rental Income Tax

At Heighten Accountants, we specialise in helping landlords maximise tax efficiency while ensuring full compliance with HMRC regulations.

Our services include:

• Accurate tax calculations – We will ensure you claim all allowable expenses to minimise your tax bill
• Full Self-Assessment preparation – We will handle your SA105 property income submission
• Mortgage interest optimisation – We will advise you on the most tax-efficient approach
• Making Tax Digital (MTD) compliance – Our accountants will prepare you for upcoming digital reporting changes.
• Tax planning strategies – This includes incorporation advice and inheritance tax planning

With our expertise, you will avoid costly errors while making the most of your property investments.

Learn more about the services we provide to landlords

Key Takeaways for UK Landlords

Understanding and correctly reporting your rental income is extremely important to avoid HMRC penalties while maximising your profits.

Here are some of the things you need to remember:

• All rental income must be declared, including rent, fees, and retained deposits
• Claim all allowable expenses to reduce your taxable profit
• Meet Self-Assessment deadlines (register by 5 October, file by 31 January)
• Prepare for Making Tax Digital (required from April 2026 for larger portfolios)

Keeping accurate records throughout the year will simplify your tax return and ensure you claim every deduction you’re entitled to.

If you need expert help with your rental income tax

Contact Heighten Accountants today for tailored advice and peace of mind.