Rental income tax UK explained
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Quick answer: Landlords pay income tax on rental profits after allowable expenses — mortgage interest no longer fully deductible, replaced by a 20% tax credit on finance costs.
HMRC requires landlords to report property income through Self Assessment or Making Tax Digital when income exceeds relevant thresholds. This guide explains allowable expenses, the mortgage interest tax credit and the records you need to keep.
Last reviewed:
Read the full benefits & tax guide →Quick answer: How is rental income taxed? →Primary source: www.gov.uk/renting-out-a-property/paying-tax
Allowable expenses
Day-to-day repairs such as fixing a broken boiler are allowable against rental income. Improving the property — adding an extension, for example — is capital expenditure that adds to your base cost for CGT instead.
Replace domestic items relief covers like-for-like furniture and appliances in furnished lets. You claim the cost of replacement items, not the original purchase price of what you replaced.
Special regimes
Furnished holiday lettings rules have changed in recent years. Check whether your property still qualifies for business asset treatment before you assume favourable CGT rules apply on sale.
Rent a Room relief exempts up to £7,500 of income from lodgers in your own home. If you use this relief, you cannot also deduct expenses against that income.
Record keeping
Keep receipts, tenancy agreements and mileage logs for property visits. HMRC enquiries are common in the property sector, and poor records make it hard to defend your expense claims.
A separate bank account for rent simplifies accounting and Making Tax Digital record keeping. Mixing personal and rental transactions makes it harder to produce clean figures at year end.
Common questions
Do I pay NI on rent?
You do not pay Class 2 or Class 4 National Insurance on pure rental income unless you are trading as a furnished holiday let business. Standard buy-to-let income is taxed as property income only.
What when I sell?
Capital gains tax applies to property gains on sale. Private residence relief may apply if you lived there, but lettings relief rules have been tightened and now apply in fewer situations.
Must I register for MTD?
Check the current income thresholds for Making Tax Digital for income tax. Qualifying landlords must submit quarterly digital updates to HMRC under the rolling rollout timetable.