Rental Income Is Taxable
All rental income must be declared to HMRC on your Self Assessment tax return. You pay Income Tax on your net rental profit — income minus allowable expenses. If you're a basic rate taxpayer, you pay 20% on rental profits. Higher rate taxpayers pay 40%. Additional rate taxpayers pay 45%.
Allowable Expenses
You can deduct a range of expenses from your rental income before calculating your tax liability. Allowable expenses include: letting agent fees, property management fees, repairs and maintenance (not improvements), buildings and contents insurance, ground rent and service charges, accountancy fees, and certain legal fees. Keep receipts for everything.
Section 24 — The Mortgage Interest Restriction
Since Section 24 was fully implemented, landlords can no longer deduct mortgage interest as a business expense. Instead, you receive a 20% tax credit on your mortgage interest payments. For basic rate taxpayers, the effect is broadly neutral. For higher rate taxpayers, this significantly increases the effective tax rate on rental income — because you pay tax on gross rental income (before mortgage interest) and then receive only a 20% credit.
Wear and Tear — What Changed
The old 10% wear and tear allowance for furnished properties was abolished in 2016. You can now only claim for the actual cost of replacing furnishings — on a like-for-like basis. Keep receipts for all replacements.
Self Assessment Deadlines
Register for Self Assessment by 5 October in the tax year after you first receive rental income. File your paper return by 31 October or your online return by 31 January. Pay any tax owed by 31 January. If your tax bill exceeds £1,000, you'll also make payments on account in January and July.
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This article is for educational and informational purposes only and does not constitute legal, financial, or professional advice. Always verify current requirements and consult a qualified professional for your specific situation.