A Guide to Tax on Rental Income

Perhaps you’ve been a landlord for a while, or are thinking of venturing down that career path. Either way, it’s important to understand the tax on rental income. Not everyone will be aware of the taxes involved in being a landlord – but we’re here to tell you. To learn more about tax on rental income, read our handy guide today.

What’s Classed as Rental Income?

Put simply, rental income is classed as any money received from your tenants. Although rental income primarily comes from rent payments, it also includes:

• Use of furniture
• Fees for various services, such as cleaning
• Regular maintenance
• Heating costs
• Repairs

Do You Pay Tax on Rental Income?

Yes, if you’re a landlord in the UK, you must pay tax on rental income. Landlords pay tax on their rental income based on the rate applicable to their income tax band. They must calculate their income accurately to ensure the right amount of tax is paid to HMRC.

How much tax you must pay is calculated by adding all your rental income together – whether that’s from one property or multiple, and then subtracting rental income allowances.

If you own additional rental properties overseas, but are based in the UK, it’s highly likely that you’ll be required to pay income tax on properties you rent out abroad, too.

National Insurance

Landlords who pay tax on rental income can make voluntary National Insurance contributions (NIC) to qualify for the State Pension. You can only pay voluntary Class 2 NICs if:

• Your main job is being a landlord
• You rent more than one property out
• You’re purchasing properties to rent out

Rental Income Tax Rates

How much rental income can you earn without paying taxes? Landlords will be taxed based on their Income Tax band. In the UK, the Income Tax bands are currently as follows:

Renting Out Rooms in Your Home

If you don’t have a large property portfolio and have decided to rent out a room (or multiple) in your home, you might wonder how your tax obligations will differ. There’s no rule on how much of your home you can let out.

If you rent out a room from your home in the UK, the Rent a Room Scheme allows you to earn up to a threshold of £7,500 each year completely tax-free. However, if you receive more than this amount each year, you must then complete a tax return.

Other Taxes to Be Aware of as a Landlord

Landlords should be aware of all the taxes they must pay while working in their role. As well as paying Income Tax, many landlords also have to pay:

• Stamp Duty Land Tax
• Capital Gains Tax (CGT)

Reporting Your UK Rental Income

The first £1,000 of rental income is known as your property allowance – which is tax-free. Anything over this amount must be reported to HMRC. It’s important to report how much income you gain from being a landlord in the UK, otherwise, you could face a penalty.

You can report your UK rental income through self-assessment tax returns if your income is more than £2,500 after allowable expenses or £10,000 before allowable expenses. You can either complete your self-assessment independently or have a trusted accountant complete it for you.

Accountants for Landlords

Although many landlords choose to complete their own tax returns, it can be quite a task. Landlords are busy and often need extra time to focus on both their work and personal lives. With the help of an accountant, landlords can relax knowing their tax returns are being dealt with properly, with minimal risk of mistakes being made.

Experienced accountants, such as ourselves at DH Business Support, know exactly how to support landlords and understand how rental income should be taxed.

Our friendly and dedicated team of accountants are finance specialists – ready and waiting to help landlords across the country. No need to stress about your taxes as a landlord – we can help.

If you could benefit from our efficient accounting services for landlords, we encourage you to contact us today!