Tax Implications of renting out your property

There are always tax implications to consider before deciding whether to rent out part or your entire home to a tenant. Failure to inform HM Revenues & Customs of income from rental properties could incur fines and penalties.  Below we address some of the common concerns.


How do I calculate how my rental income is taxed?

You need to pay income tax on any profit made from renting out a property you own.  This is calculated by adding together all your rental income and deducting all your allowable expenses.  The net rental income is also known as the rental profit

The tax is payable to HM Revenue & Customs.

What are the allowable expenses that I can deduct from the rental income when I am calculating the rental profit?

Common allowable expenditure includes accountancy and agents fees, maintenance, mortgage interest, repairs and redecorations.

Remember part of your responsibilities is keeping detailed records of income and expenditure.  HMRC may want to see these records.  The records need to be kept for a minimum of 6 years.


How do I declare the property income I receive to HM Revenue & Customs?

You must notify HMRC of any rental income you receive.  You will usually be required to complete a Self Assessment Tax Return if you receive money from renting out a property. 

If the rental profit if less than £2,500 you may not need to complete a Tax Return (assuming you do not already do so) & HMRC may be able to collect taxes payable though the PAYE system.  You will need to speak to your local Tax Office to arrange this.

What tax rate will I pay on the rental income?

Your net rental income (the rental profit) is added to your other sources of income to determine whether it is taxed at 20%, 40% or 50%.

I’m planning to rent a room in my home to a lodger do I need to pay tax?

Renting out a room in your house can be a good way of making extra money, tax-free. 

The Rent a Room Scheme allows you to receive up to £4,250 gross income each year from lodgers tax-free.  To qualify you must let furnished residential accommodation in your main residency.  If you charge tenants extras for cleaning, laundry or meals this must be added to the rent received when you calculate the gross rent.  Expenses cannot be deducted. 

If you receive more than £4,250 gross income you can choose either to pay tax on the profits in the normal way (by paying tax on your actual profit after deducting expenses) or pay tax on the gross income less the £4,250 limit, with no allowance for expenses.

You can opt not to use the scheme if you’d prefer to pay tax via Self Assessment.    


I own a foreign property.   Do I need to tell HMRC about the rental income I receive?

If you live and pay tax in the UK you must tell HMRC about any sources of income you receive from your overseas properties.  You are taxed in the same way as you would be on a UK property.  You calculate the gross rental income and deduct the allowable expenses, you then pay tax on the net rental income.


I rent out my UK property whilst I am living and working abroad.  Do I need to pay tax on the rental income I receive?

If you decide to rent out your home whilst you live abroad you will pay income tax on the property in the same way as you would if you resided in the UK.  If you rent the property through a letting agent tax is deducted at 20% on quarterly basis which is paid to HMRC. 

Alternatively you can apply to HMRC to receive the rent without a deduction of tax. You will then need to complete a Self Assessment Tax Return showing the rental income. 

You should bear in mind that a UK national would normally be entitled to a personal tax free allowance which can be set against the income.


If you have any questions about Renting out your property or completing your Self Assessment Tax Return, you can drop me a message.

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