Published by Westridge Accountants | Quality, Affordability & Convenience
Owning rental property can be an excellent source of income — but it comes with tax obligations that many landlords underestimate, or miss entirely. Whether you rent out a single flat or manage a portfolio of properties, understanding your tax responsibilities is essential.
Do You Need to Declare Rental Income?
Yes — if you receive rental income from a property in the UK, you are legally required to declare it to HMRC through a Self Assessment tax return. There is one exception: if your total gross rental income is £1,000 or less, you may be covered by the Property Income Allowance and have nothing to pay.
HMRC has become increasingly effective at identifying undeclared rental income using Land Registry data, letting agent records, and their Connect system. The risks of not declaring are significant — penalties can reach 100% of unpaid tax, plus interest.
How Rental Income Is Taxed
Rental income is added to your other income and taxed at your marginal rate of Income Tax. Your taxable rental profit is your gross rental income minus allowable expenses.
| Income Band | Tax Rate |
|---|---|
| Up to £12,570 (Personal Allowance) | 0% |
| £12,571 – £50,270 | 20% (Basic Rate) |
| £50,271 – £125,140 | 40% (Higher Rate) |
| Over £125,140 | 45% (Additional Rate) |
What Expenses Can Landlords Claim?
Allowable revenue expenses include:
- Letting agent fees and management charges
- Buildings and contents insurance
- Repairs and maintenance (but not improvements)
- Utility bills paid on behalf of tenants
- Accountancy and legal fees
- Ground rent and service charges (leasehold properties)
- Council Tax when the property is empty
- Advertising costs to find tenants
- Professional cleaning between tenancies
Repairs vs. improvements: Replacing a broken boiler like-for-like is a repair (allowable). Upgrading to a newer model may be treated partly as an improvement (not allowable). If in doubt, seek advice.
The Section 24 Mortgage Interest Restriction
This is one of the most significant tax changes to affect landlords in recent years. Before April 2020, landlords could deduct their full mortgage interest from rental income. This has now been replaced by a 20% tax credit on mortgage interest — meaning higher rate taxpayers no longer get full relief.
Example — impact for a higher rate taxpayer:
- Annual rental income: £20,000 | Mortgage interest: £10,000
- Old rules: taxable profit £10,000 → tax at 40% = £4,000
- Current rules: taxable profit £20,000 → tax at 40% = £8,000, minus 20% credit on £10,000 (£2,000) = net tax £6,000
That’s £2,000 more tax on the same property. For some higher rate taxpayers, this has made certain properties far less profitable. Reviewing your portfolio structure is now very important.
Should You Hold Property in a Limited Company?
Incorporating your property portfolio has become increasingly popular since Section 24 was introduced. Inside a company, mortgage interest remains fully deductible, and Corporation Tax (19–25%) is charged instead of Income Tax at 40–45%.
However, incorporation has significant costs — Stamp Duty Land Tax is usually payable on transfer, Capital Gains Tax may be triggered, and companies face their own filing obligations. This decision requires careful, personalised analysis. Please speak to us before making any changes to your ownership structure.
Capital Gains Tax When You Sell
When you sell a rental property, Capital Gains Tax (CGT) applies to the gain. For 2025/26, CGT rates on residential property are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.
Important: CGT on residential property must be reported and paid to HMRC within 60 days of completion. Missing this deadline results in penalties.
Furnished Holiday Lettings — New Rules from April 2025
From 6 April 2025, Furnished Holiday Lets (FHLs) are treated the same as any other UK residential letting. The separate, more favourable FHL tax regime — including capital allowances and business asset reliefs — no longer applies. If you run holiday lets, you need to review how this affects your tax position.
Making Tax Digital for Income Tax — Landlords in Scope from 2026
From April 2026, landlords with total income over £50,000 must submit quarterly digital updates to HMRC under Making Tax Digital for Income Tax. The threshold drops to £30,000 from April 2027.
If you manage properties using spreadsheets or paper records, you will need to move to compatible software before the deadline. Westridge Accountants can help you choose the right system and get set up well in advance.
How Westridge Accountants Can Help
We help landlords across Hillingdon, West London, and beyond: prepare and file Self Assessment returns including rental income schedules, ensure all allowable expenses are claimed correctly, advise on Section 24 and whether incorporation is worth considering, calculate CGT on property sales within the 60-day deadline, and get you MTD-ready before April 2026.
Our fees are fixed and transparent. We’re available 7 days a week, 8am to 10pm.
Have rental income and want to make sure your tax affairs are in order? Get in touch at info@westridgeaccountants.co.uk or visit www.westridgeaccountants.co.uk
This article is for general guidance only and does not constitute personalised tax advice. Tax rules can change and individual circumstances vary. Please contact Westridge Accountants for advice tailored to your specific situation. Westridge Accountants Ltd is regulated by AAT and supervised by AAT for Anti-Money Laundering purposes.
Frequently Asked Questions
Do I need to declare rental income if I only rent out a room in my home?
You may be covered by the Rent a Room Scheme, which allows you to earn up to £7,500 per year tax-free from letting a furnished room in your own home. If your rental income exceeds this threshold, you must declare it via Self Assessment.
What is Section 24 and how does it affect landlords?
Section 24 (the Mortgage Interest Restriction) replaced full mortgage interest deductions with a 20% tax credit. Higher-rate taxpayers no longer receive full relief on mortgage interest — a landlord previously paying 40% tax on £10,000 profit could now face £2,000 more tax on the same property.
How long do I have to report and pay Capital Gains Tax after selling a rental property?
You must report and pay Capital Gains Tax within 60 days of completion of the sale, using HMRC’s online CGT service. Missing this deadline results in late payment penalties and interest charges.
When does Making Tax Digital apply to landlords?
From April 2026, landlords with total income over £50,000 must submit quarterly digital updates to HMRC. The threshold drops to £30,000 from April 2027. If you use spreadsheets or paper records, you need to move to compatible software before the deadline.
Should I put my rental properties into a limited company?
This depends on your individual circumstances. Inside a company, mortgage interest remains fully deductible and profits are taxed at Corporation Tax rates (19–25%) rather than Income Tax rates (up to 45%). However, transferring existing properties can trigger Stamp Duty Land Tax and Capital Gains Tax. Please contact us before making any changes to your ownership structure.
