When Is Rental Income Taxable in the UK?
Learn when you need to pay tax on rental income, the £1,000 property allowance, and how to report earnings from letting property in the UK.
Key Actions
- Calculate your total rental income for the tax year
- Decide between property allowance or claiming expenses
- Register for Self Assessment if your income exceeds the thresholds
- Keep records of all rental income and expenses
If you rent out property in the UK, you may need to pay Income Tax on what you earn. But not all rental income is taxable — and knowing the thresholds can save you from unnecessary paperwork or unexpected tax bills.
This guide explains when rental income becomes taxable, the allowances available to you, and when you need to tell HMRC about your earnings.
The Basic Rule
Rental income is taxable as part of your overall income. You add it to any other income you have (employment, self-employment, pensions) and pay tax at your marginal rate.
However, you don't pay tax on the full amount you receive. You're taxed on your rental profit — that's your income minus allowable expenses, or after applying the property allowance.
The £1,000 Property Allowance
The first £1,000 of rental income each tax year is tax-free. This is called the property allowance.
If your total rental income is £1,000 or less, you:
- Pay no tax on it
- Don't need to tell HMRC
- Don't need to file a Self Assessment return (for this income alone)
Important: The property allowance applies to gross income, not profit. If you earn £900 in rent, it's tax-free — even if you had no expenses.
Property Allowance vs Claiming Expenses
You must choose one approach:
| Approach | Best when |
|---|---|
| Property allowance (£1,000) | Your expenses are less than £1,000 |
| Claiming actual expenses | Your expenses exceed £1,000 |
You cannot use both. If you claim the property allowance, you cannot deduct any expenses. If your mortgage interest, repairs, and other costs exceed £1,000, claim expenses instead.
Example: You receive £8,000 rent and have £3,500 in allowable expenses.
- Using property allowance: Taxable profit = £8,000 - £1,000 = £7,000
- Using expenses: Taxable profit = £8,000 - £3,500 = £4,500
Claiming expenses saves you tax in this case.
What Counts as Rental Income?
Rental income includes more than just the monthly rent. You need to count:
- Rent payments from tenants
- Charges for services you provide (heating, hot water, cleaning communal areas)
- Charges for furniture if you rent furnished
- Insurance payouts for lost rent
- Grants for repairs (some types)
What Doesn't Count
- Deposits held as security (unless you keep them)
- Rent-a-Room income — this has its own separate scheme with a £7,500 allowance
When You Need to Tell HMRC
The reporting thresholds depend on your income level:
| Situation | Action required |
|---|---|
| Rental income £1,000 or less | No action needed |
| Income over £1,000 but profit under £2,500 | Contact HMRC — you may not need a full return |
| Profit over £2,500 | File a Self Assessment tax return |
| Gross income over £10,000 | File a Self Assessment tax return |
Key deadline: If you need to register for Self Assessment, do so by 5 October following the tax year you first received rental income.
Example: You start renting out a property in July 2025 (tax year 2025/26). Register for Self Assessment by 5 October 2026.
The Rent-a-Room Scheme
If you let a furnished room in your own home (where you live), you may qualify for a higher tax-free threshold.
Rent-a-Room allowance: £7,500 per year tax-free
This is separate from the property allowance and much more generous. It applies when you:
- Live in the property as your main home
- Rent out a furnished room to a lodger
- May include bed and breakfast arrangements
Shared threshold: If you share the income with someone else (a partner, for example), the allowance is £3,750 each.
What doesn't qualify:
- Letting a separate flat (even in the same building)
- Renting out property you don't live in
- Unfurnished rooms
If your Rent-a-Room income exceeds £7,500, you can either:
- Pay tax on the amount over £7,500, or
- Calculate your actual profit (income minus expenses) and pay tax on that
Choose whichever gives you the lower tax bill.
Joint Ownership
How rental income is taxed depends on who owns the property:
Married Couples and Civil Partners
By default, HMRC splits rental income 50/50 between you, regardless of who actually owns what percentage.
If you own the property in unequal shares (say 70/30) and want to be taxed accordingly, you must:
- Actually own the property in those proportions
- Complete Form 17 to declare your beneficial interests to HMRC
Other Joint Owners
For unmarried couples, friends, or business partners, income is usually taxed based on your ownership share. If you own 60% of a property, you're taxed on 60% of the profit.
You can agree a different split, but it should reflect your actual arrangement.
Multiple Properties
If you own several rental properties, the profits and losses are combined into a single UK property business.
This means:
- A loss on one property can offset profit on another
- You report the total net profit (or loss) on your tax return
- You don't file separately for each property
Exception: Overseas properties must be kept separate from your UK property calculations.
Tax Rates on Rental Income
Rental profit is added to your other income and taxed at your marginal rate:
| Tax band | Rate |
|---|---|
| Basic rate | 20% |
| Higher rate | 40% |
| Additional rate | 45% |
The thresholds change each tax year — check GOV.UK for current bands.
Example: You earn £40,000 from employment and £10,000 rental profit. Your total income is £50,000. Part of your rental income may fall into the higher rate band depending on current thresholds.
Key Deadlines
| What | When |
|---|---|
| Register for Self Assessment | 5 October after the tax year |
| File paper tax return | 31 October |
| File online tax return | 31 January |
| Pay tax owed | 31 January |
For the 2024/25 tax year (April 2024 to April 2025):
- Register by: 5 October 2025
- File online by: 31 January 2026
- Pay by: 31 January 2026
When You Don't Need to Do Anything
You can ignore rental income for tax purposes if:
- Your total rental income is £1,000 or less (property allowance)
- You use the Rent-a-Room scheme and earn £7,500 or less
- You make an overall loss (though you may want to report it to carry forward)
But even if you don't owe tax, keeping records is sensible — HMRC can ask questions going back several years.
Getting Started Checklist
- Calculate your rental income — include rent plus any service charges
- Estimate your expenses — mortgage interest, repairs, insurance, agent fees
- Compare allowance vs expenses — which gives you the lower taxable amount?
- Check if you need to register — income over £1,000 usually means yes
- Keep records — receipts, bank statements, tenancy agreements
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.
Official Sources
- Renting out a property: Paying tax — GOV.UK
- Income Tax when you rent out a property — GOV.UK
- Rent a Room scheme — GOV.UK
- Register for Self Assessment — GOV.UK