Rental Income Tax Guide for Landlords in London

One of your first tasks as a new London landlord is to get to grips with the rules about tax on rental income and register for self-assessment.

To be financially successful as a landlord, you must achieve sufficient rental income to make a profit after having paid taxes and other costs. Fortunately, for landlords in East London, rental properties with good transport links are in high demand, with some areas commanding up to a 6% letting yield. A higher letting yield allows landlords to make higher profits – but it is also essential to understand what taxes you must pay on your rental income.

How much tax you pay on rental income will depend on how much profit you make from renting out property, your non-property income and your expenses as a landlord. To help you get to grips with your tax obligations and calculate tax on your rental income in the UK, we’ve pulled together this simple guide.

Based on our experience working with landlords in East Ham, Wanstead, Seven Kings and the surrounding areas, these are some of the most frequently asked questions about tax on rental income.

How much tax do you pay on rental income?

If you are a self-employed landlord, you will pay income tax on your rental income. The amount you pay will depend on how much profit you make and the tax band your total income falls into. To work out how much tax you need to pay on rental income, you will need to do the following:

1. Calculate net rental profit (by subtracting allowable expenses from gross rental income)
2. Add this to other income and determine tax band
3. Calculate rental income tax at that rate
4. Deduct mortgage interest tax relief

You can use an online tax calculator to estimate how much income tax you should pay for the current tax year.

If you rent through a limited company, you will pay corporation tax on your rental income, so this article will not be relevant to you.

What counts as rental income?

The rent you receive from tenants will make up most of your rental income, but other costs you pass onto tenants are also included in rental income. For example, if you charge your tenants separately for cleaning or utility bills. If you retain any of the tenant’s deposit at the end of the tenancy, this must also be recorded as rental income.

What allowable expenses can I claim?

When calculating your taxable rental profit, you subtract the allowable expenses from your rental income. Understanding which costs you can claim for, could reduce the tax bill on your rental income.

Deductible allowable expenses include:

• Accountant fees and legal fees directly attributable to renting your property. For instance, you can claim legal fees for tenant eviction but not legal fees related to the property purchase.
• Landlord insurance (including buildings, contents and public liability).
• Letting agent’s fees and management fees.
• Ground rent and service charges.
• Phone calls, stationery and advertising for the rental business.
• Maintenance and repairs (though not improvements).
• Upkeep such as gardening or cleaning services.
• Vehicle costs strictly related to the rental property.
• Council tax and gas, electricity and water bills if you pay them.

In this article, you can read more about what items are classed as allowable expenses.

Domestic item replacement relief explained

Another way to minimise the tax on your rental income is to claim domestic item relief. It covers the like-for-like costs of purchasing new household items and disposing of the old ones. Some of the items you can claim relief on include:

• Fridges and freezers
• Carpets and curtains
• Beds
• Freestanding wardrobes and chests of drawers
• Sofas and armchairs
• Kitchenware
• Crockery and cutlery

What are the rental income tax rates?

Your income tax band determines the rate at which you pay tax, and how much income tax you pay depends on how much of your income falls into each tax band. What tax you pay on rental income will be affected by you other earnings. Adding your rental income to your other sources of income may push you into the next tax bracket. The current income tax rates are:

Income Tax Band	Taxable Income 2025 – 2026	Income Tax Rate 2025 – 2026
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,551 – £50,270	20%
Higher Rate	£50,271 – £125,140	40%
Additional Rate	£125,141 and above	45%

Want to become a more informed landlord? Explore capital gains tax on rental property and managing a property portfolio.

What if I have multiple properties?

If you own more than one UK property, add together all your rental income and expenses to calculate your combined net rental income. By combining rental income from multiple properties, you can offset losses on one property against profits from another.

Profits from overseas property are treated separately.

What if I have made a loss?

If your rental income does not amount to more than the sum of your allowed expenses, you will make a loss. This is quite common in the first year of owning a rental property due to the costs involved in getting it ready to rent. It may also happen if you have to pay a lot of money for repairs to the property.

You can offset losses against future tax bills for your property business. For example, if you record a £2,500 loss in the tax year 2023-24 but in the tax year 2024-25 make rental profits of £6,000, you can deduct your previous year’s losses so that you would pay tax on rental earnings of £3,500.

What is my property allowance?

There is a £1,000 property income allowance, so the first £1,000 of your rental income is tax-free. If your gross rental income is below £1,000, you are not required to declare it to HMRC.

Landlords who are required to complete a tax return must choose between claiming their property allowance or deducting their actual expenses. If your expenses are less than £1,000 in a given tax year, claiming your property allowance would be more tax-efficient.

What is mortgage interest tax relief?

Previously, landlords could deduct mortgage interest from their rental income to lower their tax bill. However, new rules on how rental income is taxed mean you can no longer make this claim. Instead, you will receive a tax-credit, based on 20% of your mortgage interest payments.

How do I submit a landlord self-assessment tax return?

If you earn more than £2,500 from rental income in a tax year, you will need to submit a self-assessment tax return by the deadline of 31 January if submitting online or 31 October if submitting by post. If you earn between £1,000 and £2,500, you should contact HMRC.

To submit an online self-assessment tax return, you will first need to set up a Government Gateway account, and you will need to register for self-assessment on the gov.uk website. When you are completing your tax return, you will need to have the following information:

• UTR (unique taxpayer reference)
• National Insurance number
• Records of expenses, including receipts, bank statements, letting contracts etc.
• Records of rental income

Making Tax Digital for landlords

Making Tax Digital is an initiative introduced by the government to move over to digital-only tax returns. This initiative aims to reduce tax return errors, reduce processing costs for HMRC and make the tax return submission process faster and more straightforward for taxpayers.

Filing paper tax returns will be phased out in two stages, and the digital system will be mandatory from 6 April 2026 for landlords earning over £50,000, £30,000 by 6 April 2027, and £20,000 by 2028. After this, businesses and landlords will have to keep digital records, give quarterly updates, and compatible finance software to submit tax returns for rental income tax. HMRC’s videos and live webinars explain exactly what’s involved.

Want to become a more informed landlord? Take a look at buy-to-let mortgages for first-time buyers and void period costs for landlords.

What happens if I have to declare unpaid tax?

Perhaps you didn’t think buy-to-let rental income tax affected you, or let an inherited house without realising the tax implications? The consequences of overlooking tax on rental income can be severe, but you might pay lower penalties and avoid prosecution with the government’s Let Property Campaign – the questionnaire can help to clarify where you stand.

If you have undeclared tax, tell HMRC that you intend to make a disclosure. You must then disclose the tax calculations on your rental income and pay what’s owed within 90 days, to be covered by the campaign’s terms.

What other taxes do landlords pay?

Income tax is the only tax that private landlords will need to pay on their rental income. However, landlords may need to pay some other types of tax.

Stamp duty

Stamp duty (stamp duty land tax) is a tax paid on property purchases. The rate is calculated depending on the property’s purchase price and the buyer’s circumstances. For landlords buying property in England and Northern Ireland, there is a second home surcharge of 3% on top of the stamp duty rates.

Council tax

Tenants will usually be liable for paying council tax. If the property is unoccupied, the landlord is liable for paying the council tax until the next tenancy agreement starts.

Capital gains tax

As a landlord, you may also be required to pay capital gains tax if you sell your property and the house price has increased since you purchased it. The capital gains tax rate for higher-rate taxpayers is 28%, and 18% for basic-rate taxpayers.

How to reduce tax on rental income

You may be able to offset some of the tax liabilities by checking if you are eligible for government relief. Tax relief for landlords includes:

• Replacement of Domestic Items Relief
• Allowable expenses
• Property Income Allowance up to £1,000 (if not claiming expenses)
• Joint ownership with a partner to maximise tax free allowances
• 20% tax credit on mortgage interest

We can help you manage your investment property

Understanding your rental property and income tax responsibilities can be steep learning curve, so don’t hesitate to reach out for advice. If you are a new landlord in Dagenham, Stratford, Romford or Bromley, find out how we can help you understand tax on rental income and many more aspects of letting property. Contact us today.

Looking for a stress-free lettings solution? Then explore our guaranteed rent services in Harrow, Barnet, Enfield, Ealing, Luton & beyond.