Just as employees are required to pay taxes on their wages, property owners must also pay taxes on the money they get from renters.
Previously, buy-to-let investors were taxed on their rental income "after deducting mortgage expenses," but they can now only receive a 20% tax credit on their expenses.mortgage interest payments, which has reduced earnings.
Here, Telegraph Money outlines the method for calculating tax on rental earnings, and what it signifies if you own several properties and rentals abroad.
- What is the tax imposed on income from rentals?
- How is income tax for rental properties determined?
- Taxation of rental income from multiple properties
- Tax on rental income from foreign properties
- Rental income tax FAQs
What is the tax imposed on income from rentals?
A tax on rental earnings is a form of income tax applied to the money received from renters. The rates, limits andtax-free allowancesare identical to those for any other form of income, regardless of whether it comes from employment or a pension.
You can also apply specific expenses related to being a landlord to lower your tax liability – however, following changes in the rules several years ago, you can now claim a smaller portion of your mortgage expenses.
Chris Etherington from RSM UK, an accounting firm, stated: "In terms of residential rentals, there are specific rules regarding mortgage and other loan-related expenses. This relief is provided as a tax reduction, not as a deduction from rental income, at a rate of 20%."
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How is income tax calculated for rental properties?
A tax on rental earnings varies based on whether you are taxed as a person or as a business, if you have established the property ownership as a company.
If you are taxed as a person, the income tax will function similarly to the tax you would pay on earnings from a job.
Rachael Griffin, from wealth management firm Quilter, stated: “It is subject to 20%, 40%, or 45%, based on your tax bracket. The key distinction is that you would have to fill out a”self-assessment tax return and calculate your profits.”
The sum you are required to pay is calculated by deducting tax-exempt allowances and costs from your overall rental earnings – leading to your taxable profit.
As noted earlier, this profit is subject to taxation based on your income level.
For the tax year 2025-26:
- Basic-rate taxpayers pay 20% on earnings ranging from £12,570 to £50,270.
- Taxpayers in the higher rate bracket are charged 40pc on earnings ranging from £50,271 to £125,140.
- Higher-rate taxpayers are charged 45% on income exceeding £125,140.
Most individuals do not owe any tax on income up to £12,570 — known as the personal allowance — but this benefit starts to decrease once your earnings exceed £100,000. For every £2 earned beyond that, you lose £1 of your tax-free allowance. By the time your income reaches £125,140, you will no longer have a personal allowance.
Since the UK operates on a progressive tax system, keep in mind that you must combine any rental income from leasing a property with other taxable earnings to calculate the applicable tax rate.
Ms. Griffin stated, "For instance, if you made £35,000 from work and an additional £20,000 from rental earnings, you would fall into the higher tax bracket, resulting in paying 40% on £4,730."
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Why are you required to pay taxes on income from rentals?
- Rental income is classified as taxable income, similar to a salary or business earnings.
- Being responsible for paying taxes on rental earnings is a legal requirement.
- While other investments may gain from being kept in anIsa (individual savings account)where expansion is free from taxation, the Government does not encourage investment in real estate in the same manner
- Although the property tax regulations have been developed by various governments over time, a major factor behind the current tax system might be the insufficient availability of housing. The existing rules may discourage many potential landlords from entering – or remaining in – the rental business, theoretically leading to more properties being available for those who wish to live in them as owners.
Taxation of rental income from multiple properties
If you own several properties, you generally need to combine all the profits and consider them as income from a single business. After that, you subtract eligible expenses for each property to determine your overall taxable profit.
Nicholas Mendes, from broker John Charcol, stated, "For instance, if one property generates a profit while another incurs a loss, the loss from one property can counterbalance the profit from another—possibly lowering your total tax burden."
It is strongly recommended to maintain distinct, thorough records for every property, including both revenue and costs.
Mr. Mendes stated, "This guarantees precision and makes submitting your tax return easier."
Keep in mind that there are certain exceptions to the rules mentioned earlier.
Mr. Etherington stated, "This encompasses income from properties owned in a partnership that must be reported as an individual rental business."
Tax on rental income from foreign properties
Keep in mind that income generated from a rental property located abroad may still be subject to taxation in the UK, even if taxes have already been paid abroad.
Mr. Mendes stated, "Having a property abroad introduces an additional level of complexity to your tax responsibilities. Fortunately, the UK offers"double taxation agreementswith numerous countries, enabling you to seek relief and prevent double taxation on the same income.
However, navigating the particular tax regulations in both regions can be complex, making it advisable to consult a professional to ensure adherence – and also to avoid paying more in taxes than necessary.
When is rental income tax due?
The following are the dates for submitting the 2024-25 return:
- 31 October 2025: deadline for submitting the Self Assessment paper
- December 30, 2025: last day to apply online if you want HMRC to deduct tax via your PAYE code (for amounts less than £3,000)
- January 31, 2026: final date to submit the online Self Assessment form and pay the balance for the 2024–25 tax year, along with the initial payment for the 2025–26 period
- July 31, 2026: second installment for the 2025–26 period
Not reporting rental income may lead to fees, charges, and in certain situations, legal consequences. Maintaining compliance helps you keep your tax matters properly managed.
If you rent out a property and generate income from it, make sure to follow the regulations. You will need to determine your profits and submit a tax return.self-assessment tax return.
Expenses and tax allowances
Expenses:
Eligible expenses are costs that are incurred "entirely and solely" for the purpose of leasing a property. They can be subtracted from your rental income to lower your taxable profit. These include:
- Utility bills
- Property repairs
- Service charge costs
- Letting agent fees
- Landlord insurance.
Ms. Griffin stated, "These costs can lower your taxable income when filing your self-assessment tax return, so it's crucial to maintain a thorough record of all expenses."
Allowances:
A variety of tax-exempt benefits are available for individual property owners. These include:
- the tax-free allowance for property, which can exclude as much as £1,000 in property earnings annually from income tax
- the rent-a-room scheme, which enables a homeowner to earn up to £7,500 in rental income annually without paying taxes – as long as the income comes from a tenant residing in their house.
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Rental Income Tax FAQs
Is tax applied to rental earnings when you have a home loan?
Yes, you are still required to pay taxes on rental income, even if you are currently paying off a mortgage.
Having a mortgage on your rental property can greatly influence the amount of tax you owe.
Earlier, landlords were able to subtract the entire mortgage interest expense from their rental earnings, but in recent times, tax benefits for property owners have decreased.
Mr. Mendes stated, "Currently, if you rent out a property, you are eligible for a 20% tax credit on your mortgage interest expenses."
This could indicate that landlords who fall into the higher-rate or additional-rate tax brackets will not get complete tax relief on their rental earnings.
Mr. Etherington cautioned: “In certain cases, property owners may incur a loss through their rental activities yet still face a tax obligation.”
What is the maximum amount I can rent out my house for without having to pay taxes?
This varies based on your additional income. If, as a property owner, you don't have any other sources of income besides rental earnings, you may not owe any income tax. This is because the rent you receive could be within yourpersonal allowance. This enables you to generate a specific amount of income without paying taxes.
The majority of people receive a personal allowance of £12,570 (set at this amount until April 6 2028) – and typically do not owe taxes if their taxable income is under this threshold.
Furthermore, property owners might take advantage of the £1,000 tax-free allowance. This option can be chosen instead of reporting real costs if it proves to be more advantageous.
Am I required to pay taxes on rental income if it's my sole source of income?
Yes, income from renting is subject to taxation, even if it is your sole source of earnings.
That being said, as previously noted, if your overall income—covering rental income—is under the personal allowance (which is £12,570 for the 2025-2026 tax year), you will not have to pay any taxes.
Mr. Mendes stated, "Nevertheless, you are still obligated to report the income to HMRC to keep your records accurate and current. Similarly, if your rental earnings surpass the personal allowance, you will need to pay tax on the portion that exceeds the threshold."
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