Yes, you pay income tax on rental income, and you must report it to HMRC

If you own a rental property in the UK, the rent you receive is taxable income. You report it to HM Revenue & Customs (HMRC) on your Self Assessment tax return, and you pay income tax on your profit — not on the full rent you collect. The tax rate depends on your total income and whether you're a basic-rate, higher-rate, or additional-rate taxpayer.

You can deduct certain expenses from your rental income before calculating the tax you owe. These deductions reduce your taxable profit, which is why keeping records of what you spend on the property matters.

Key Takeaways

  • Rental income is taxable, and you must declare it to HMRC on a Self Assessment return each tax year.
  • You pay income tax on your profit (rent minus allowable expenses), not on the full rent amount.
  • Allowable expenses include mortgage interest, repairs, insurance, council tax, and letting agent fees — but not mortgage capital repayment.
  • If you have a mortgage, you can only deduct the interest portion, not the capital you pay back each month.
  • Landlords with rental income over £1,000 a year must register for Self Assessment and file a return.

What counts as an allowable expense

You can deduct costs directly related to running the rental from your taxable income. These include mortgage interest (not the capital repayment), council tax, water rates, buildings insurance, contents insurance, repairs and maintenance, letting agent fees, advertising for tenants, accountant or tax adviser fees, and utilities you pay for.

You cannot deduct the capital portion of your mortgage — only the interest. If you pay £500 a month and £300 is interest and £200 is capital, you can only deduct the £300. You also cannot deduct improvements that add value to the property (like a new kitchen or extension); these count as capital expenditure. However, you may be able to claim capital allowances on certain items like furniture or appliances in a furnished let.

Keep receipts and invoices for everything you claim. HMRC can ask for evidence, and landlords without records often lose deductions they could have claimed.

How the tax year works and when you pay

The UK tax year runs from 6 April to 5 April the following year. You report all rental income and expenses for that period on your Self Assessment return, which you file by 31 January after the tax year ends. For example, rent received between 6 April 2023 and 5 April 2024 is reported on the return you file by 31 January 2025.

You pay the tax bill by 31 January. If you owe more than £3,000, HMRC may ask you to pay in instalments. If you expect to owe tax, you can pay it in advance through your Self Assessment account to avoid a large bill at the end of the year.

Registering for Self Assessment

You must register for Self Assessment if your rental income is over £1,000 in a tax year. You can register online through the HMRC website or by phone. Registration usually takes a few minutes, and HMRC will send you a Unique Taxpayer Reference (UTR) number.

Even if your income is below £1,000, you may still want to register and file a return if you have expenses that create a loss. Reporting a loss can carry it forward to offset future years' profits, which reduces your tax bill later.

Capital gains tax when you sell

When you sell a rental property, you may owe capital gains tax on the increase in value since you bought it. This is separate from income tax on rent. You calculate the gain as the sale price minus the original purchase price and any allowable costs (like legal fees or major improvements).

Your main residence is exempt from capital gains tax, but a rental property is not. The rate depends on your income level: basic-rate taxpayers pay 20 percent on residential property gains, and higher-rate taxpayers pay 40 percent. You report capital gains on your Self Assessment return in the tax year you sell.

Stamp duty and other property taxes

When you buy a rental property, you pay Stamp Duty Land Tax (SDLT) on the purchase price. The rate is higher for additional properties than for your main home. As of the current rates, you pay 5 percent on purchases between £250,000 and £925,000, and higher percentages above that. These rates change periodically, so check the HMRC website for the current bands.

You also pay council tax on the property if it's let unfurnished, or you may pay business rates if it's in a mixed-use building. Some landlords claim council tax as an expense against rental income, but the rules vary depending on the property type and your circumstances.

Furnished holiday lets — different rules

If you let a property as a furnished holiday let (short-term holiday rentals), the tax rules are different. You still pay income tax on the profit, but you can claim capital allowances on furniture and fittings, and you may be able to claim loss relief differently. You must meet specific conditions: the property must be available for holiday letting for at least 140 days a year and actually let for at least 70 days.

Furnished holiday lets also have different rules for capital gains tax and may may have access to for different reliefs. If you're considering this route, speak to an accountant, as the rules are complex and the tax position can be significantly different from a standard rental.

Frequently Asked Questions

Do I have to pay tax if I rent out a room in my main home?

You can earn up to £7,125 a year tax-free under the Rent a Room scheme if you let out a furnished room in your main residence. Above that, you pay income tax on the profit. You must declare the income to HMRC, even if you're under the threshold.

What happens if I don't declare rental income?

HMRC can investigate and charge you back taxes plus interest and penalties. Penalties for not declaring income can reach 100 percent of the unpaid tax. If you've missed previous years, you can make a voluntary disclosure to HMRC, which usually results in lower penalties.

Can I claim losses against other income?

If your rental expenses exceed your income in a year, you can carry the loss forward to offset future rental profits. You cannot normally set rental losses against other income like salary or pension, but there are exceptions for furnished holiday lets and some other circumstances.

Do I pay tax on the deposit my tenant pays?

No. A tenant's deposit is not your income — it's held in trust and returned to them at the end of the tenancy (minus any deductions for damage). You don't report it as income or pay tax on it.

What records do I need to keep?

Keep all receipts, invoices, bank statements, and records of rent received for at least six years. HMRC can ask for evidence of income and expenses, and landlords without records often cannot claim deductions they're may have access to to. Digital records are fine as long as they're clear and complete.