Landlord Tax Guide

Dealing with tax is an important part of being a landlord. If you receive rental income from letting a property, you need to tell HMRC and pay tax on your rental profits.

You can claim reliefs and allowances which will reduce your tax bill. You can also carry forward any losses and set them against future profits.

We’re here to guide you through the complexity of landlord’s tax, and make sure you only pay what you need to.

Keeping your landlord tax bill down

As a landlord there are a number of allowable expenses you can deduct if they’re incurred wholly and exclusively for your property rental business.

This includes expenses incurred in the day-to-day running of your property rental business like:

  • Letting agent fees.
  • Gas and electrical safety checks.
  • Professional fees for example accountancy  and legal fees.

Residential property finance costs

For landlords with a mortgage you can claim a residential property finance cost tax credit. You used to be able to claim the full amount of mortgage interest as an expense to reduce your taxable income but this stopped from April 2020.

HMRC are capping the residential property finance costs tax credit on par with the basic income tax rate which is currently at a rate of 20%.

The 20% residential property finance cost deduction is given against the lower of your:

  • Finance costs.
  • Rental income profits.
  • Adjusted rental income after all deductions and reliefs.

To claim residential property finance costs you need to complete box number 44 “residential property finance costs” in your self assessment return’s property section.

You can carry forward unused residential property finance costs into the next tax year by using box 45 unused residential finance costs brought forward on your tax return.

Other landlord expenses you can claim

Before a property is let, you might incur considerable expenses in getting it ready.

You can claim a deduction for pre-letting expenses if:

  • they were incurred no more than seven years before the start of the property rental business; and
  • they would be deductible if they were incurred once the business had started.

Filling in your landlord tax return

Landlords normally have to register with HMRC for self assessment and fill in a tax return each year.

You need to claim for your expenses using the property income pages of the tax return. You also have to include income from all other sources.

If you are living outside the UK and still have rental income you will be classed as a non resident landlord.

This means you need to fill in additional tax return pages relating to your residency status. You can find out more with our non resident landlord guide.

How to work out your landlord taxable profit

To work out the profit or loss for your property rental business simply add together all the rent you receive then deduct all your allowable expenses and any capital allowances you’re entitled to that year.

Property income is assessed for each complete tax year (6 April to following 5 April).

So it makes sense to prepare your property rental business accounts to 5 April each year.

Landlord income if you make a loss

You can carry forward a loss and set it against future profits from the same property rental business or some other income for example PAYE employment income.

It can’t be used against other income, such as any income you get from employment. Remember to claim the loss on your tax return.

What will be the tax rate on my rental income?

The rate of tax paid on rental income will be determined after considering your salary and other sources of income like profits from self employment or pension income.

Depending on your overall taxable income you may pay income tax on your rental income at more than one rate of tax.

The tax rates applicable to landlords are:

  • No tax if your total income from employment, other earnings and property fall under your tax free personal allowance.
  • A basic rate of 20%.
  • A higher rate of 40%.
  • An additional rate of 45%.

Paying tax on rental income

Tax is due by 31 January after the end of the tax year to which it relates. If you owed tax in the previous year, different dates may apply.

If you pay your tax late you’ll be charged interest by HMRC on the amount of tax that you owe.

What if I rent more than one house?

All rental income received by the same landlord is grouped together and taxed as income from a single property rental business.

This means expenses from one property can be set against income from another, reducing your overall bill. Special rules apply to furnished holiday lettings which are treated as a separate type of business.

When does a property rental business start?

The business starts when the first property is let. Any subsequent lets you make form part of the existing property rental business.

How do I register with HMRC as a landlord?

As a landlord it’s obligatory to register with HMRC so you can report your rental income on a self assessment tax return.

How you register depends on if you have previously completed a tax return. If you have had a self assessment record previously you can just reactivate the record.

If you haven’t you’ll need to provide more information and in both cases you can register online (or by post) by completing a form SA1.

HMRC requires landlords to ensure their registration is done before 5th October following the tax year (which commences on 6th April until 5th April of every year) for when they started collecting rent.

For example if your first collection of rent money was on January 31 2023; then it’s mandatory for you as a landlord to register with HMRC not later than October 5th 2023.

Should I set up a limited company for rental income?

Purchasing or transferring rental property ownership to a limited company can be a wise decision for some landlords.

The property’s legal owner is the limited company which relieves you from personally having to paying income tax on your rental earnings.

In its place your limited company will have to pay corporation tax which is often less in comparison to the higher rates of income tax.

The decision to buy more properties and evolve into a multiple property investor can influence whether you should set up and operate a limited company.

If your intentions only stretch as far as renting out one or two properties, it may not be worthwhile establishing a limited company.

However if you aim to increase your property portfolio over time a corporate structure from the beginning could be advantageous.

Before proceeding with any buy to let property purchases, consulting with a landlord accountant for some informed advice on whether to set your property business up as a limited company is recommended.

What is the property income allowance?

The property income allowance is often worth using if your annual earnings from property are £1k or less and means there’s no obligation to report your rental income on a tax return to HMRC.

It is applicable to all your rental property income and can’t be used per property if you have more than one.

You don’t need to tell HMRC you are using the property income allowance as it applies automatically.

Making Tax Digital for ITSA and landlords

Making tax digital for ITSA is bringing in changes to the way a landlord keeps accounting records and submits income and expenses to HMRC.

HMRC expect to implement MTD for ITSA for some landlords from April 2026 which will include online quarterly reporting and MTD compatible digital records needing to be kept.

You can find out more about making tax digital and how it will affect your rental business in our MTD for landlords guide.

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