Payments on Account for Landlords Explained
How payments on account work for UK rental income. Understand the two instalments, due dates, how to reduce them, and what happens in your first year as a landlord.
Key Actions
- Check if your previous year's tax bill triggers payments on account
- Note the 31 January and 31 July payment dates in your calendar
- Set aside money each month to cover your tax instalments
- Apply to reduce payments on account if your income has dropped
- Review your balancing payment after filing your return
When you earn rental income, HMRC doesn't just ask you to pay tax once a year. If your tax bill is large enough, you'll need to make payments on account — two advance payments towards your next year's tax bill.
This system catches many new landlords off guard, especially in the first year when you pay your current tax bill and the first payment on account at the same time. This guide explains how it works and how to plan for it. If you're new to rental income, start with our guide on when rental income is taxable.
How Payments on Account Work
Payments on account are HMRC's way of spreading your tax payments across the year. Instead of one lump sum in January, you pay in two instalments based on your previous year's tax bill.
Each instalment is 50% of the previous year's Self Assessment liability (the tax that wasn't collected through PAYE or other deductions).
The Two Payment Dates
| Payment | Due Date | Amount |
|---|---|---|
| First instalment | 31 January (during the tax year) | 50% of last year's bill |
| Second instalment | 31 July (after the tax year ends) | 50% of last year's bill |
Example: Your 2024/25 Self Assessment bill was £4,000. For 2025/26, you'll make two payments on account of £2,000 each:
- 31 January 2026: £2,000 (first instalment for 2025/26)
- 31 July 2026: £2,000 (second instalment for 2025/26)
These are advance payments. When you file your 2025/26 return and calculate the actual tax, the payments on account are deducted.
The First Year Problem
This is where it gets expensive. In your first year of paying Self Assessment for rental income, you face a triple payment:
- Your actual tax bill for the year just ended
- First payment on account for the next year (50%)
- Second payment on account follows in July (another 50%)
Example: Tom starts renting out a property in 2024/25. His tax bill for that year is £3,000.
On 31 January 2026, Tom pays:
- £3,000 — his 2024/25 tax bill
- £1,500 — first payment on account for 2025/26
- Total due: £4,500
On 31 July 2026, Tom pays:
- £1,500 — second payment on account for 2025/26
Tom's total outlay in the first year is £6,000 — double his actual tax bill. After the first year, the cycle continues at a more manageable pace.
When You Don't Need to Pay
You won't need to make payments on account if either of these applies:
- Your last Self Assessment bill was less than £1,000
- More than 80% of your tax was already collected at source (through PAYE, for example)
The 80% Rule
If you're employed and also earn rental income, much of your tax is already deducted through your salary. HMRC checks whether the Self Assessment portion (the tax not already collected) is less than 20% of your total tax bill.
Example: Emma earns £45,000 from her job (tax collected through PAYE) and £6,000 rental profit. Her total tax bill is £10,000, of which £8,500 was collected through PAYE. Her Self Assessment amount is £1,500 — that's 15% of her total tax. Since it's below 20%, she doesn't need to make payments on account.
However, if her rental income grows and the Self Assessment portion exceeds 20%, payments on account will kick in.
The Balancing Payment
After you file your tax return and HMRC calculates the actual tax owed, there's often a difference between what you've paid on account and what you actually owe.
If You Owe More
You pay the difference as a balancing payment on 31 January, alongside your first payment on account for the next year.
Example: You paid £4,000 on account (2 × £2,000) but your actual bill is £4,800. You owe an £800 balancing payment on 31 January.
If You've Overpaid
HMRC will either refund the overpayment or apply it to your next payment. This happens when your income was lower than the previous year.
How to Reduce Payments on Account
If you know your income will be lower than last year, you can ask HMRC to reduce your payments on account. Common reasons for landlords:
- A property is vacant for an extended period
- You've sold a rental property
- You've taken on a larger mortgage with higher interest costs
- Rental income has decreased
How to Apply
Online: Sign in to your HMRC account and select "Reduce payments on account"
By post: Complete form SA303 and send it to your tax office
Important: If you reduce your payments and your actual bill turns out to be higher, HMRC will charge interest on the underpaid amount. Only reduce if you're confident your income will genuinely be lower.
Payment Timeline for Landlords
Here's a complete timeline for the 2025/26 tax year:
| Date | What Happens |
|---|---|
| 6 April 2025 | Tax year 2025/26 starts |
| 31 January 2026 | Pay 2024/25 balancing payment + first payment on account for 2025/26 |
| 5 April 2026 | Tax year 2025/26 ends |
| 31 July 2026 | Second payment on account for 2025/26 |
| 31 January 2027 | File 2025/26 return, pay balancing payment + first payment on account for 2026/27 |
Setting Aside Money
The biggest challenge for landlords is having the cash ready when payments are due. Unlike employment income where tax is deducted automatically, rental income arrives untaxed.
A practical approach:
- Estimate your tax rate — 20% for basic rate, 40% for higher rate (after deducting allowable expenses)
- Set aside that percentage of your monthly rental profit into a separate savings account
- Add extra in year one — you'll need roughly 150% of your normal tax bill in the first year
- Review quarterly — adjust your savings if rental income changes
Example: You receive £1,000 per month in rent with £400 in expenses. Your monthly profit is £600. If you're a basic rate taxpayer, set aside around £120 per month (20% of £600). In your first year, consider setting aside £180 per month to build a buffer for the additional payment on account.
What Happens If You Pay Late
HMRC charges interest on late payments from the day after the deadline until payment is received. The current late payment interest rate is linked to the Bank of England base rate plus 4%.
If you're struggling to pay:
- Set up a Time to Pay arrangement — HMRC may let you spread payments over up to 12 months
- Pay what you can — partial payment reduces the interest charged
- Contact HMRC early — they're more flexible if you reach out before the deadline
You won't receive automatic penalties for the first late payment on account, but interest will accrue from day one.
Payments on Account and MTD
From 6 April 2026, landlords with property income over £50,000 will need to report quarterly under Making Tax Digital. However, the payment dates remain the same — MTD changes how you report, not when you pay. Your tax payments continue to follow the 31 January and 31 July schedule.
Frequently Asked Questions
Do I make separate payments on account for each property?
No. All your UK rental properties are treated as a single property business. Your payments on account are based on your total Self Assessment bill, which includes all property income combined.
What if I also have self-employment income?
Your payments on account cover your entire Self Assessment liability — rental income, self-employment income, and any other untaxed income combined. You don't make separate payments for each income source.
Can I voluntarily make payments on account?
Yes. Even if your bill is under £1,000, you can choose to make voluntary payments to spread the cost. This isn't common but can help with budgeting.
What if I sell my rental property mid-year?
If your rental income drops significantly, apply to reduce your payments on account. You may also have a Capital Gains Tax liability on the sale, which is reported separately.
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.