Do landlords pay tax on rent?

Becoming a property investor and renting out can be the start of a thrilling chapter in your life. Owning a property that generates income while building wealth for the future is an exciting prospect. When starting out on your journey as a landlord, you might be wondering: Do landlords pay tax on rent? 

This comprehensive guide will answer the key question: do landlords have to pay tax on rental income? It will also include an overview that shows how much landlords pay in taxes. It will provide practical advice on maintaining accurate records that even the most experienced landlords find challenging. We’ll also discuss recent changes in legislation regarding tax and rental properties.

Do landlords pay tax on rent? 

Yes, landlords do have to pay tax on rent. Earnings from rent, regardless of whether it is a flat, a house or even a commercial space, will be considered taxable income in the United Kingdom. All other sources of income for the landlord, such as utility charges, will be considered taxable.

Self assessment forms for landlords 

Landlords must declare their income to HMRC through a self assessment form. Unless your earnings are under £1,000, a self assessment must be done even if you do not think you will earn enough rental income during the tax year. The tax year runs from April 6 to April 5.

However, you’re not taxed on the gross amount you receive. Instead, HMRC allows you to deduct certain expenses to calculate your taxable profit. You should include all the information in the self assessment to pay the correct amount of tax.

How much do landlords pay in taxes?

How much landlords pay in taxes depends on various factors. The biggest factor is how much rent they collect during the tax year. Some allowable expenses are then taken into account. 

HMRC will treat rental income alongside your overall income, earnings from employment, self-employment, or other sources like pensions or investments. Your total income determines which tax band you fall into:

• Personal allowance: Up to £12,570 tax-free (2024-25 tax year).
• Basic rate: 20% on income between £12,571 and £50,270.
• Higher rate: 40% on income between £50,271 and £125,140.
• Additional rate: 45% on income above £125,140.

The rental profit is added to your other income to calculate your tax liability. If your rental income pushes you into a higher tax bracket, you’ll pay more tax on that portion. 

For instance, if you earn £45,000 from a job and £20,000 in rental profit, your total income of £65,000 means you’ll pay 20% on the first £37,700 above your Personal Allowance (£7,540) and 40% on the remaining £4,730 (£5,892), totalling £16,972 before any credits.

What are the allowable expenses for landlords?

One of the biggest factors in determining how much do landlords pay in taxes is allowable expenses. These are costs you can deduct from your gross rental income to lower your taxable profit. HMRC allows deductions for expenses that are “wholly and exclusively” incurred for the purpose of renting out your property. Here are some of the most common examples of allowable expenses:

• Mortgage interest: Certain circumstances allow landlords to claim a 20% tax credit on mortgage interest payments.
• Repairs and maintenance: Fixing a leaking roof or replacing a broken boiler qualifies, but improvements (like adding an extension) don’t. They’re capital expenses.
• Insurance: Landlord insurance is deductible.
• Property management fees: Fees paid to letting agents for finding tenants or managing the property count.
• Utilities and council tax: If you pay these on behalf of tenants, you can deduct them.
• Professional fees: Costs for accountants, legal advice related to renting, or eviction proceedings are allowable.
• Replacement of domestic items: For furnished properties, replacing items like sofas or fridges qualifies (but not the initial purchase).

For example, if you earn £25,000 in rent annually and spend £8,000 on repairs, £2,000 on insurance, and £2,000 on agent fees, your allowable expenses total £12,000. Your taxable profit drops to £13,000, significantly reducing your tax bill. It’s vital to keep receipts and detailed records. HMRC may ask for proof.

Mortgage Interest Relief changes

There’s been a major shift that’s impacted how much do landlords pay in taxes. This came in the form of changes to the mortgage interest relief. Before April 2017, individual landlords could deduct all mortgage interest from their rental income before calculating tax. This was a bonus for higher-rate taxpayers, as it kept their taxable profit.

However, this was phased out between 2017 and 2020. Since April 2020, individual landlords can no longer deduct mortgage interest as an expense. Instead, they receive a tax credit equal to 20% of their mortgage interest, applied against their tax bill.

Tax treatment for sole traders vs. limited companies

Whether you’re new to the world of property rental or a seasoned pro, you might be wondering whether to be a sole trader or become a limited company. The tax treatment is different for each option, so it can change the answer to the question: how much do landlords pay in taxes?

• Sole Traders/Individuals: You report rental income on a Self Assessment tax return, and profits are taxed at your personal Income Tax rate (20%, 40%, or 45%). Mortgage interest relief is limited to the 20% credit, and you can’t deduct capital repayments or improvements. Losses can be carried forward to offset future profits, but only within the same rental business.
• Limited Companies: If you own property through a company, rental profits are subject to Corporation Tax, not Income Tax. As of 2025, the rate is 19% for profits up to £50,000, with a marginal rate up to 25% for profits between £50,000 and £250,000, and 25% above that. Crucially, limited companies can still deduct mortgage interest in full as a business expense, avoiding the 20% credit restriction. However, when you extract profits (e.g., via dividends), you’ll pay Dividend Tax (8.75% to 39.35%, depending on your tax band), which can offset some savings.

For example, a company earning £50,000 in rental profit after £20,000 in mortgage interest pays £5,700 in Corporation Tax (19%). Compare that to an individual higher-rate taxpayer, who might pay £9,200 after the credit. However, setting up a company involves more paperwork, higher accountancy costs, and fewer mortgage options, so it’s not a simple solution.

Practical advice for landlords dealing with tax 

Dealing with tax payments can be quite a complex situation. Tracking every penny of rental income and any expenses throughout the tax year is essential. It could reduce your tax bill, so it’s worth doing. Keep receipts and invoices, and ensure you have access to your bank statements.

It’s also important to file your self assessment correctly and on time to avoid penalties. Some services, such as Tax Scouts, can help you do that correctly. An accountant specialising in the subject can stay on top of complex and ever-changing tax rules.

After learning about whether landlords have to pay tax on rental income, you’ll likely feel more confident about your financial obligations. Still, unexpected issues like disputes or maintenance costs can crop up. That’s why protecting your investment with landlord insurance is essential. For personalised quotes, call us at 01788 818 670 or get a quote online today!