Owning rental property can be a great way to generate extra income, but it also comes with important tax responsibilities. If you’re a landlord, even with just a single property, it’s essential to understand how rental income affects your personal tax return. Knowing the rules can save you from unexpected bills and make sure you’re taking advantage of the reliefs available.
At AK Tax, we often hear from landlords who find the system confusing. What exactly counts as taxable income? Which expenses can you deduct? And how do you report everything to HMRC? Let’s take a closer look.
How Rental Income Is Taxed
Rental income is treated as part of your overall taxable income. That means it’s added to your salary, dividends, or any other earnings you may have and taxed according to the standard income tax bands. For the 2024/25 tax year, that means 20% for basic rate taxpayers, 40% for higher rate and 45% for those in the additional rate band.
The important point is that HMRC looks at your profits, not just the rent you collect. In other words, you can deduct certain expenses before working out what’s taxable. For many landlords, that difference can be significant.
Important Budget Update for Landlords
In the Autumn Budget 2025, the government confirmed a significant change to how property income will be taxed from 6 April 2027. Under the new rules, rental profits will be subject to higher income tax rates – increasing by two percentage points across the basic, higher, and additional rate bands. This means landlords will face higher tax liabilities on their rental income, regardless of portfolio size.
The change is part of a broader shift to bring the taxation of investment income, including property and savings, more closely in line with earned income. As a result, landlords – particularly those already in the higher tax brackets – will need to prepare for these changes well in advance. From a practical standpoint, this makes tax planning even more important, as strategies such as incorporating property businesses or sharing ownership between spouses may help mitigate the impact.
AK Tax is already working with landlord clients to review their future tax exposure and identify opportunities to remain as tax-efficient as possible under the new regime.
What You Can Deduct
Running a rental property usually comes with a steady flow of expenses and many of these can be offset against your rental income. Repairs and maintenance, such as fixing a broken boiler or repainting between tenants, are deductible because they are considered necessary to keep the property in good order. The same goes for letting agent fees, landlord insurance, accountancy costs and service charges on leasehold properties.
However, it’s worth understanding the distinction between repairs and improvements. Replacing a faulty roof tile would normally count as a deductible repair, but building an extension would not – though the extension might reduce your future Capital Gains Tax bill if you eventually sell.
Mortgage interest has also been a big issue for landlords in recent years. Before 2020, interest payments could be deducted in full, but now they are dealt with differently. Instead of reducing your rental profit directly, you receive a 20% tax credit against your bill. That means basic-rate taxpayers are unaffected, but higher and additional rate landlords no longer get relief at their marginal rate.
Tax-Free Allowances
Not all rental income is taxed. Some landlords benefit from tax-free allowances designed to make life easier for those with smaller amounts of property income.
If your rental income is £1,000 or less in a tax year, you don’t need to declare it at all, thanks to the Property Allowance. For those who earn more than that, you can either deduct the £1,000 allowance or claim your actual expenses, depending on which works out better.
There’s also the Rent-a-Room scheme, which applies if you rent out a furnished room in your own home. This allows you to earn up to £7,500 a year without paying tax on it. If the income is shared – for example, between a couple – each person gets half of that allowance.
Declaring Rental Income
If you have taxable rental profits, you’ll need to file a Self Assessment tax return. This involves completing the property pages, where you’ll declare the income you’ve received and the expenses you’ve claimed.
Accurate record-keeping is essential. HMRC can ask to see invoices, receipts, mortgage statements, or other evidence that supports the figures you’ve reported. These should be kept for at least five years after the 31 January submission deadline. Missing deadlines or making mistakes can lead to penalties and interest charges, so it pays to be organised.
The filing deadline for online returns is 31 January after the end of the tax year, though many landlords choose to file earlier to avoid a last-minute scramble.
Thinking Ahead
Tax on rental income isn’t just about filling in a form once a year – it’s about long-term planning. For example, if you own several properties, you may want to consider whether it’s more tax-efficient to hold them in a limited company, especially if you’re a higher-rate taxpayer. You should also be thinking about the future: how Capital Gains Tax might apply if you sell a property, or how Inheritance Tax could affect your estate if you plan to pass properties to family.
Planning ahead also means keeping clear records throughout the year, rather than trying to reconstruct everything at tax return time. This not only makes filing easier but also ensures you don’t miss out on allowable deductions.
How AK Tax Can Help
At AK Tax, we know that landlords don’t become experts in tax overnight. You’re busy managing properties, dealing with tenants and keeping up with maintenance – and the last thing you need is to worry about whether you’ve reported your income correctly.
That’s where we come in. We work with landlords across Kent and beyond to make sure their rental income is handled properly. From completing Self Assessment returns to planning for long-term tax efficiency, we take care of the details so you can focus on running your portfolio. We also make sure you’re claiming everything you’re entitled to, from the smallest repair to the biggest reliefs, so you don’t pay a penny more than you need to.
Final Thoughts
Earning rental income can be a smart investment, but it brings with it the responsibility of getting your tax affairs right. By understanding how rental profits are taxed, what expenses you can claim and which allowances you might qualify for, you’ll be better placed to manage your liabilities and avoid unpleasant surprises.
And you don’t have to do it alone. With AK Tax by your side, you’ll have expert guidance tailored to your circumstances – whether you own one property or a whole portfolio.
If you’d like support with your rental income, or simply want reassurance that you’re managing it as efficiently as possible, get in touch with AK Tax today. We’ll help you stay compliant, reduce stress and keep more of what you earn.
