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Posted on 31st Jul, 2019

How much tax do you pay on rental income?

It is possible that you are the owner of a property you invested in, and you have tenants living in that property, from whom you collect rent? Now if that is the case, you must declare the rental income you receive from this when you file your taxes. 

Remember that the amount of tax you pay on your rental income depends mainly on the amount of profit you make and your employment status. Let us discuss a little more in detail.


Types of Taxes for Property Owners

In the United Kingdom, there are three main types of taxes:

    • Income tax
  • National insurance
  • Value Added Tax (VAT)

If you are a full-time employee of some organisation and rent out one or two properties, you will possibly pay rental income tax on the profit you make from the rent on those properties.

Your tenant is responsible for paying council tax, but if you have no tenant, you must pay it.

If you are a full-time landlord, you must declare to Her Majesty’s Revenue and Customs (HMRC) that you are starting a business and the taxation rules are then different in that case.

Small House With Change Next To It

Tax Saving Tips

There are costs that you can claim to reduce tax, and the rules are different for the following types of properties:

  • Residential properties
  • Commercial properties
  • Furnished holiday homes


Tips for Residential Properties

You or your organisation is supposed to pay tax on the profit gained from renting out the property, after making deductions for certain permissible expenses. These expenses are items you must spend money on in the daily running of the property, like:

  • Legal fees for annual rentals or less, or for renewing a less than 50-year lease
  • Accountants’ fees
  • Letting agents’ fees
  • Buildings and contents insurance
  • Property loan interest
  • Utility bills
  • Service charges, rent, ground rent
  • Council tax
  • Gardening or cleaning services
  • Other direct costs


Tips for Furnished Residential Apartments

It may be possible for you to claim wear and tear allowance for a tax year.

Renovating a Repossessed property

Tips for Furnished Holiday Homes

In this category, you can claim:

  • Machinery and plant capital allowances for furnishings, furniture, and other items in the property along with equipment like tools or vans.
  • Capitals Gain Tax relief is like Entrepreneurs’ Relief, Business Asset Rollover Relief, relief for gifts or loans.


Remember that you can claim these only if:

  • Your property is offered for rent for at least 210 days annually
  • It is rented for more than 105 days in a year
  • No single rental period exceeds 31 days
  • You take the market rate for similar properties in the local area.


Tips for Commercial Properties

You may claim machinery and plant capital allowances on certain items if you have a commercial property on the rental market, like a garage, shop or lock-up.

As a good citizen of the United Kingdom, paying income tax is part of your duties, but you can always figure out ways to save some money on these taxes so that you do not end up paying exorbitant amounts.


Thank you for reading Repossessed Houses blog post. If you would like to find out more about property investment and the rental tax then send an email to [email protected] and we will answer any questions or queries you may have.

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