UK Rental Income

‘Rental income’ in the UK refers to the money landlords receive from tenants, and it also includes any additional payments received for services like furniture use, cleaning common areas, hot water, heating, or property repairs, as defined by HMRC.

UK Tax on Rental Income

Whether you’re a resident or non-resident (even if you live abroad), as a landlord, you are required to pay tax on the rental income generated from your properties in the UK and file a self-assessment tax return annually (also known as a landlord tax return).

Non-resident landlords must report the rental income both in their home country and the UK and they could avail of double taxation agreements.

You need to report your rental income and claim any allowable expenses on your rental tax return, which is typically due by 31 January following the end of the tax year (5 April).

You can file a property tax return online or on paper.

It’s essential to keep accurate records of your income and expenses to complete your UK property tax return correctly.

Allowable Expenses

Landlords can deduct certain allowable expenses from their rental income before calculating the tax liability. These expenses may include:

  • Professional fees: legal costs, agents fees, accountants
  • Mortgage interest relief
  • Ground rent
  • Utility bills – energy and water
  • Council tax
  • Landlord insurance
  • Property repairs and maintenance

Landlord Tax and Personal Allowance in the UK

The first £1,000 of rental income is tax-free, thanks to the property allowance. This means that landlords with rental income of less than £1,000 per year do not need to pay any tax on rental property.

For landlords with rental income of more than £1,000 per year, the amount of tax they pay will depend on their overall income tax band. The current income tax bands for the 2023-24 tax year are as follows:

  • Personal allowance: Up to £12,570 (tax-free)
  • Basic rate: £12,571 to £50,270 (20%)
  • Higher rate: £50,271 to £150,000 (40%)
  • Additional rate: Over £150,000 (45%)

Capital Gains Tax on Rental Property

The amount of Capital Gains Tax you owe on buy-to-let property after a sale depends on your taxable income.

If your income falls within the basic rate taxpayer category, specifically £50,000 or below, the tax rate stands at 18%.

For those in the higher rate taxpayer bracket, whose income exceeds £50,000, the CGT rate rises to 28%.

In addition, a taxpayer disposing of UK residential property is required to inform HMRC within 60 days of the property being conveyed that the disposal has occurred.

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UK Statutory Residence Test

To determine the individual’s residency position, the ‘Statutory Residence Test’ is applied.

Under this test, you are considered a resident for UK tax purposes if you spend 183 days or more in the UK in a given tax year. The following non-exhaustive list of factors can also affect your UK residency position:

  • Where your main home is located
  • If you have a home in the UK
  • If you are working in the UK or abroad
  • If you have family and other ties to the UK

Non-Resident Landlords Scheme

The Non-Resident Landlords Scheme (NRLS) is a scheme used for taxing the UK rental income of persons whose usual place of abode is outside the UK, commonly referred to as ‘non-resident landlords’.

The NRLS places responsibility on either the tenant or, in cases where there is one, the letting agent. As far as the NRLS is concerned, the fiscal year spans from April 1 to March 31.

Non-resident landlords can offset the tax deducted from their UK rental income under the Non-Resident Landlords Scheme against their tax bill when they complete their UK self-assessment tax return.

They can also claim repayment of any excess tax deducted from their UK rental income.

Your property tax advisor can guide you through the process.

Non-resident landlords can also apply to HMRC to have their rental income received gross.

Broadly speaking, the criteria are as follows:

  • UK tax affairs must be up to date
  • They do not have any other UK tax filing obligations
  • They do not expect to be liable for any UK income tax for the year in which they apply
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It should be noted that where a non-resident landlord has successfully applied to receive the rental income gross, it does not mean that the income is exempt from UK tax; it remains taxable and a property tax return must be filed for each tax year in which they receive UK rental income.

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PTI Returns provides a wide range of UK tax services for resident and non-resident landlords with property in the UK. We’re a registered agent with HMRC and have over 20 years of experience. We provide:

  • UK PAYE income tax returns
  • UK self-assessed tax returns
  • UK self-employed tax returns
  • UK Capital Gains Tax assistance
  • UK Non-Resident Landlord Registration
  • UK request for receipt of gross rents
  • Foreign rental income returns
  • Assistance with tax payments to HMRC
  • Liaising with your tax-resident accountant

Talk to our tax professionals for a free, no-obligation quote for your UK property tax requirements.

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Furnished holiday let (FHL)

A furnished holiday let (FHL) is a form of short-term rental that offers property owners an opportunity to generate income.

To qualify as a furnished holiday letting (FHL) the accommodation must be in the UK or European Economic Area (EEA) and commercially let. You must also satisfy the following tests for your property to qualify as an FHL.

1. The property must not be rented by a single tenant for more than 31 days (as that would classify it as a long-term rental) or for more than 155 days (equivalent to 22 weeks) in a single year.

2. The property must be commercially let as holiday accommodation to the public for at least 105 days.

The FHL Rules

Different tax rules apply to income from letting property and income from trading. Income from letting property, including holiday lettings, is normally taxed under the property income rules, and treated as investment income. However, the FHL rules allow holiday lettings that meet certain conditions to be treated as a trade for the following tax purposes:

  • Loss relief
  • Capital allowances
  • Landlords Energy Saving Allowance (LESA)
  • Certain capital gains tax reliefs (including business asset roll-over relief, entrepreneurs’ relief, relief for gifts of business assets, relief for loans to traders and exemptions for disposals of shares by companies with a substantial shareholding)
  • Relevant UK earnings when calculating the maximum relief due for an individual’s pension contributions.

The main benefit is that any losses on an FHL can be claimed against other income, while normal property losses can only be carried forward and set against future property income. Wear and tear allowances are not available for FHLs as they qualify for capital allowances instead. There are certain transitional rules in place for FHLs in the EEA.

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FAQs

  • The UK self-assessment tax return consists of a tax return and separate supplementary pages, which are added depending on your residency status and sources of income.
  • What is a ‘property business’ defined as?
    • rental income and other receipts from UK land or property
    • income from letting furnished rooms in your own home
    • income from Furnished Holiday Lettings (FHL) in the UK or European Economic Area (EEA)
    • premiums from leasing UK land
    • inducements to take an interest in letting a property (a reverse premium)
  • Do I have to pay Class 2 National Insurance?
  • Class 2 National Insurance contributions are due only if the taxpayer is self-employed. You have to pay Class 2 National Insurance if your profits are over £12,570 a year and what you do counts as running a business, for example, if all the following apply:
    • being a landlord is your main job
    • you rent out more than one property
    • you’re buying new properties to rent out

    If your profits are under £6,725, you can make voluntary Class 2 National Insurance payments, for example, to make sure you get the full State Pension.

    You don’t pay National Insurance if you’re not running a business – even if you do work like arranging repairs, advertising for tenants, and arranging tenancy agreements.

     

  • Do I pay tax if I am a UK non-resident landlord?
  • If you are a non-resident landlord earning rental income in the UK while living abroad, you are typically required to register for the Non-Resident Landlord Scheme (NRLS). You must also file a landlord tax return, reporting your rental income and expenses, and claiming allowable deductions. In most cases, you won’t need to pay tax directly to HMRC; instead, your tax liability is settled through the self-assessment process when you file your return. However, if you fail to register for the NRLS, your letting agent or tenant may withhold 20% tax at source from your rental income.
  • How much tax do I pay on rental income in the UK?
  • The rate at which you will pay tax on rental income in a given year is determined by your Income Tax band. Unlike resident landlords, non-resident landlords are typically not entitled to Personal Allowance.
    If your income falls within these ranges:
    ● Below the basic rate threshold of £12,570, you won’t pay any tax on rental income. (Personal Allowance threshold)
    ● Between £12,570 and just below the higher rate threshold of £50,270, you’ll be subject to a 20% tax rate on your rental income
    ● Between £50,270 and below £125,140 – 40% tax rate will apply
    ● If your income exceeds £125,140 – 45%
    If you earn less than £1,000 a year in rental income then you don’t have to report it to HMRC
  • How do I pay tax on my rental income?
  • If you are a resident landlord, you will need to report your rental income on your self-assessment tax return. If you are a non-resident landlord, you will need to register with HMRC under the Non-Resident Landlord Scheme (NRLS). Your letting agent or tenant will then deduct tax from your rental income at source.
    Non-resident landlords will usually be required to file a property tax return.
  • What are the tax implications of selling a rental property?
  • The tax implications of selling a rental property are as follows:
  • When selling a rental property in the UK, both resident and non-resident individuals will generally have to pay Capital Gains Tax (CGT) on the profit they make. The amount of CGT you pay depends on your total capital gains for the year and your income tax rate band. For resident landlords, the standard CGT rules apply, with rates of 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers. Non-resident landlords may be subject to Non-Resident Capital Gains Tax (NRCGT), with different rates, typically 28% for individuals and 20% for corporations. To reduce your CGT liability, you can explore various reliefs, such as Principal Private Residence Relief and other applicable exemptions, as well as make use of the annual tax-free allowance, known as the Annual Exempt Amount. The availability and conditions of these reliefs can vary, so it’s advisable to seek professional advice to ensure compliance with current tax regulations.
  • What are allowable/deductible expenses?
  • Allowable expenses are things you need to spend money on in the day-to-day running of the property, like:
    • letting agents’ fees
    • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
    • accountants’ fees
    • buildings and contents insurance
    • interest on property loans (please note that new rules have been in force since 5 April 2017)
    • maintenance and repairs to the property (but not improvements)
    • utility bills, like gas, water, and electricity
    • rent, ground rent, service charges
    • Council Tax
    • services you pay for, like cleaning or gardening
    • other direct costs of letting the property, like phone calls, stationery, and advertising

     

  • What are the tax rules regarding capital expenditure?
  • Allowable expenses don’t include ‘capital expenditure’ – like buying a property or renovating it beyond repairs for wear and tear. Expenses are generally ‘capital expenses’ when you:
    • add something to the property that wasn’t there before
    • alter, improve, or upgrade something that was existing
    • include the purchase of furnishings and equipment for the property

    Capital expenses aren’t allowable and can’t be claimed against your rental income but you should keep records of them as you might be able to set them against Capital Gains Tax if you sell the property in the future.

     

  • What is Rent-a-Room relief?
  • The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else. You can let out as much of your home as you want.
    You must complete a tax return if you earn more than the threshold.
  • Are there any special tax rules for non-resident landlords?
  • You need to pay tax on your rental income if you rent out a property in the UK.
    You may also need to pay tax if you make a gain when you sell residential property in the UK.
    If you live abroad for 6 months or more per year, you’re classed as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC) – even if you’re a UK resident for tax purposes. Letting agents or tenants of a non-resident landlord must:

    • deduct tax from the landlord’s UK rental income; and
    • pay the tax to HMRC

     

  • Change of Capital Gains Tax for non-UK Residents from 06 April 2015
  • CGT legalization is complex but a summary of the changes for Non-Resident Landlords is as follows: Letting agents or tenants of a non-resident landlord must:
    • You may also need to pay tax if you make a gain when you sell residential property in the UK.
    • In addition, a taxpayer disposing of UK residential property is required to inform HMRC within 30 days of the property being conveyed that the disposal has occurred.
    • Losses on disposals of UK residential property will be ring-fenced for use against gains on other UK residential properties arising to the same non-UK resident individual in the same or future years.
    • If a non-resident becomes a UK resident, any unused UK residential property losses will be available as general losses against other types of capital gain from that point.
    • If the non-resident is categorised as a UK self-assessment taxpayer, the CGT liability arising can be paid through the normal filing process. Otherwise, the vendor will need to make an “advance self-assessment” and pay their tax to HMRC within 60 days.

    Your tax professional can provide more detail on the Capital Gains Tax rules.

     

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UK Property Tax Rates and Deadlines

Tax Year
6th Apr – 5th Apr
Income Tax Rate
20% – 45%
Income Tax Deadline
The normal filing date for a return filed online is 31 January after the end of the tax year, i.e. 31 January 2024 for 2022/23 tax year.
Capital Gains Tax Rate
Tax rates from 18% to 28%
Dual Tax Agreement with Ireland
Yes
Dual Tax Agreement with the UK
N/A

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UK Property Tax Return Services & Fees

Most tax returns can be completed on a fixed fee basis, regardless of how many supplementary pages you require.

The base fee is £265 and this covers the preparation of an income tax return involving business or property income.

In addition to our fixed fee structure, if your tax affairs are complicated (e.g. if you have foreign income sources and associate reliefs, share schemes, or complex residency issues) or you made any chargeable disposals in the year that were subject to Capital Gains Tax, then our fee will be based on the time taken to deal with the tax return.

In most cases, the fee will be no more than £400.

We will always advise you of any additional fees before undertaking any work on your behalf, and we endeavour to identify any such fees when undertaking our initial review of your tax position.

An increase of £50 will be applied in the event of an urgent deadline.

What does the Fixed Fee include?

  • Completion of core self-assessment tax return form.
  • Completion of all necessary supplementary pages.
  • Calculation of your tax liability or repayment.
  • Submission of the tax return to the Inland Revenue.
  • VAT

What is not included in the Fixed Fee?

 

  • Obtaining information from third parties
  • Organisation of supporting information, e.g. receipts
  • Tax and planning advice
  • Dealing with Inland Revenue enquiries

In such instances, we may need to increase our fees to cover the additional work involved. An estimate of the cost for this type of work will always be agreed with you in advance.

Exceptional Fees

Exceptions to our fixed fees arise when your tax affairs are especially complicated (e.g. foreign income sources and associated reliefs) or you have capital gains tax liabilities. In these cases, the fee will be based on the time taken to deal with the tax return.

Normally this will be no more than £325. A brief review of your tax position is needed to give a quote based on your specific circumstances. A quote will be provided in advance.

Learn more about rental property income taxes in the UK.

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When you apply through this contact form:

  1. A tax specialist will contact you
  2. After specifying with you the services you need and the tax documents required, you will receive information regarding our final fees
  3. Before we can start work on your tax return, we will need you to share the necessary property information and tax documents with our team


     

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