Rental income
Rental income is money received by a landlord from a tenant in exchange for the right to occupy a property, under a tenancy agreement or licence. Under the Income Tax (Trading and Other Income) Act 2005, UK landlords are treated as running a property rental business and must declare rental income to HMRC. For most landlords this income is subject to income tax, charged on the profit after allowable deductions rather than on the gross rent received.
What counts as rental income
HMRC defines rental income broadly. The full monthly rent paid under the tenancy agreement is rental income, as are most additional sums a tenant pays that are properly part of the rental arrangement. If a landlord recharges utilities to a tenant on a fixed, inclusive basis, those payments form part of rental income. Payments for the use of furniture in a furnished let are also included.
Certain receipts are not rental income. A deposit is not income when received, it is held on behalf of the tenant and only becomes income if it is legitimately retained at the end of the tenancy to cover arrears or damages. Compensation from an insurer for a specific repair or loss is generally not income. Payments that amount to prohibited fees under the Tenant Fees Act 2019, such as admin charges, inventory fees, or check-out fees beyond the list of permitted payments, cannot be treated as rental income and must not be charged.
The £1,000 property allowance
HMRC provides a £1,000 property allowance each tax year. Landlords whose total rental income does not exceed £1,000 in a tax year pay no tax on it and are not required to report it. Landlords earning more than £1,000 must choose between claiming the property allowance as a flat deduction or deducting their actual allowable expenses. They cannot use both methods in the same tax year. For most landlords with any meaningful level of expenditure on a property, deducting actual expenses produces a lower tax bill.
Rental income and rental profit
Rental income and rental profit are not the same figure. Rental income is the gross amount received before deductions. Rental profit is what remains after allowable expenses, including repairs, insurance, letting agent fees, accountancy costs, and similar running costs, have been subtracted. Income tax is charged on the profit, not the gross rent.
Mortgage interest is treated differently from other expenses under Section 24 of the Finance (No. 2) Act 2015. Individual landlords cannot deduct mortgage interest as an expense; instead, they receive a 20% tax credit on mortgage finance costs after profit is calculated. This rule does not apply to properties held in limited companies, which can still deduct mortgage interest in full as a business expense.
From working with self-managing landlords across the UK, the most common misunderstanding we encounter around rental income is the assumption that tax is owed on the full rent rather than the profit. A landlord receiving £1,200 per month in rent but spending £400 per month on allowable costs has taxable profit of approximately £800 per month, not £1,200.
Record-keeping obligations
HMRC requires landlords to keep records of all rental income received, including the date, amount, and property each payment relates to. These records must be retained for at least five years after the 31 January self-assessment filing deadline for the relevant tax year, or longer if HMRC opens an enquiry. From April 2026, landlords with qualifying income above £50,000 must keep records digitally and submit quarterly updates under Making Tax Digital.
The method of rent collection affects how easily these records can be maintained. Cash payments require manual receipts and records. Standing order payments can be tracked from bank statements but require manual reconciliation against each tenancy. Open banking bank feeds automate this process, incoming payments are matched to the correct tenancy in real time, creating a digital record at the point of receipt. Landlords who connect their bank account to property management software can have rental income recorded automatically against the correct tenancy as each payment arrives, producing MTD-ready digital records without manual data entry. August's rent tracking feature works this way, pulling in bank transactions via Plaid and reconciling them against the rent schedule for each tenancy.
Reporting rental income to HMRC
Landlords whose rental income exceeds £1,000 in a tax year must register for self-assessment with HMRC. The supplementary SA105 form is used to report UK property income within the self-assessment return, covering gross rent, allowable expenses, rental profit or loss, and the mortgage interest figure for the Section 24 credit calculation. The self-assessment filing deadline is 31 January following the end of the relevant tax year.
From 6 April 2026, landlords with qualifying income, gross rental income plus any sole-trade income, above £50,000 must comply with Making Tax Digital for Income Tax, replacing the annual self-assessment return with quarterly digital submissions plus a final declaration. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
For a detailed explanation of how rental income is taxed, including tax bands, the Section 24 mortgage interest credit, worked examples, and the interaction with other income, our guide to how rental income is taxed in the UK covers the full calculation.
Frequently asked questions
Is rental income the same as rental profit?
No. Rental income is the gross amount received before any deductions. Rental profit is what remains after allowable expenses have been subtracted. Tax is charged on the profit, not the gross rent. The distinction matters significantly for landlords with high running costs, mortgage interest, repairs, insurance, and agent fees can substantially reduce the taxable figure, though mortgage interest is now handled as a 20% tax credit rather than a direct deduction under Section 24.
Do I need to declare rental income if it is below £1,000?
No. The £1,000 property allowance means landlords whose total gross rental income does not exceed £1,000 in a tax year pay no tax on it and have no reporting obligation. Above £1,000, the income must be declared. Between £1,000 and £2,500 after expenses, HMRC may be able to collect tax through PAYE rather than requiring a self-assessment return; above £2,500 after expenses, or above £10,000 before expenses, self-assessment registration is required.
Are deposits rental income?
No, when received. A deposit is held on behalf of the tenant and must be protected in a government-approved scheme. It is not income. If the landlord legitimately retains all or part of a deposit at the end of a tenancy, for unpaid rent or damages, the retained amount becomes income in the tax year it is retained and must be declared accordingly.
Does rental income from furnished holiday lets work differently?
Furnished holiday lets were previously subject to different tax rules, including the ability to count profits as earnings for pension purposes and claim capital gains tax reliefs available to traders. These rules were abolished from April 2025, furnished holiday let properties are now treated the same as any other rental property for income tax purposes.
