How much tax do I pay on rental income?
TheHub@Druce- •
- 15 May 2025
How much tax do I pay on rental income?
A 2025 guide for UK landlords with example from Kensington flat
1. What counts as rental income?
Your taxable rental income includes:
- Monthly rent paid by tenants
- Cleaning, utility, or maintenance fees paid by tenants
- Any non-refundable deposits
- Insurance or service charges recovered from tenants
Refundable deposits (held in TDS) are not taxed unless retained at tenancy end.
2. What expenses can I deduct?
To reduce your tax bill, you can deduct:
| Allowable expenses | Examples |
|---|---|
| Letting agent & property management | Druce fees, marketing, referencing |
| Maintenance & repairs | Plumbing, painting (not improvements) |
| Services provided | Cleaning, gardening (for tenants) |
| Insurance | Landlord building and contents |
| Council tax & utility bills | If paid by you, not the tenant |
| Ground rent & service charges | Leasehold flats |
| Replacement of domestic items | Furniture/appliances – see note below |
Note: You can’t deduct mortgage capital repayments, but you can claim mortgage interest relief (20%) under the finance cost restriction rule.
3. How to calculate tax on rental income
Step-by-step formula:
- Rental income (annual)
- – Allowable expenses
- = Taxable rental profit
- Apply income tax rates based on your total annual income:
| Band | Income range (2025/26) | Tax rate |
|---|---|---|
| Personal allowance | £0 – £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
4. Example: 2-bedroom flat in Kensington
| Item | Amount |
|---|---|
| Monthly rent | £3,500 |
| Annual rental income | £42,000 |
| Expenses (PM, insurance, etc.) | £8,000 |
| Net rental profit | £34,000 |
Assuming the landlord has no other income:
| Calculation | Result |
|---|---|
| Taxable profit | £34,000 |
| Personal allowance (0% rate) | –£12,570 |
| Taxable at 20% | £21,430 |
| Tax due | 20% × £21,430 = £4,286 |
| Less: mortgage interest relief | e.g., £1,200 (20% of £6,000) |
| Final tax payable | £3,086 |
5. Landlord tax checklist
- Register for Self Assessment with HMRC
- Keep receipts and proof of expenses
- Claim reliefs if furnished holiday let (FHL) or rent-a-room applies
- File a tax return by 31 January every year
Sample of filing a tax return timeline:
| Tax Year Covered | Deadline to File Online | Deadline to Pay Tax |
|---|---|---|
| 6 Apr 2024 – 5 Apr 2025 | 31 January 2026 | 31 January 2026 |
| 6 Apr 2025 – 5 Apr 2026 | 31 January 2027 | 31 January 2027 |
You must submit your return and pay any tax due by 31 Jan of the following calendar year
Our tip: Work with a tax adviser (e.g. Gerald Edelman – @Druce’s partner) to structure your portfolio tax-efficiently, especially if you own multiple properties or operate through a company.
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