As a landlord, how much tax do I pay?
How much tax you pay as a landlord all depends on your own set of circumstances. Each person’s tax position is different and has a direct effect on the amount of tax you owe.
Landlords 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 at a rate of 20%.
- Your pay tax on your rental income at a rate of 40% or above.
Landlord tax basics
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 business and work out your tax bill accordingly.
What are allowable expenses for landlords?
HMRC allow taxpayers to deduct certain costs from their income total before calculating tax. It includes things like:
- Professional fees; accountant, legal costs, agents fees.
- Mortgage interest relief.
- Ground rent.
- Utility bills; energy and water.
- Council tax.
- Property maintenance and repairs.
- Landlord insurance.
This is not an exhaustive list and includes 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 and keep HMRC compliant records.
For example, whilst you are allowed to deduct the cost of repairs and maintenance, this does not include any improvements to your property which may qualify as capital expenses instead.
Capital expenses can be used against a future capital gains tax bill if you sell the property.
Landlords mortgage tax relief
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 credit.
The 20% 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 do I work out my rental income taxable profits?
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.
£25,000 annual salary
£7,200 taxable rental income (£600 per month X 12 months)
£32,000 total income
£1440 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.
What happens if I make a loss on my rental income?
If you make a 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.
Save money for your landlord tax bill
It is crucial to have a projection for how much tax your tax bill will be, so that you can set money aside for the end of the financial year to pay it.
Not all of your rental income is profit meaning that some of your rental income needs to be retained to pay for any tax owed.
The amount of tax owed 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.
Property income allowance
For gross rental income below £1000 you may be able to use the property income allowance which if applicable lets you earn up to the £1000 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 £1000 and £2500
Typically as a property owner earning net rental income exceeding £2500 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.
Other income and your rental income
It is common for a landlord to have other types of income from sources like a pension or PAYE employment.
All of your other income has to be included on the same tax return and can this can decrease the profitability of your rental income business because your overall income may breach the 40% or 45% income tax brackets.
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 thus reducing the overall tax paid on your rental income.
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.
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.
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 £2500 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.