Having a rental property is a great way to make money.

What is the definition of rental income?

Rental revenue from a flat or home, or from a portion of a flat or house, such as a room or a parking space, is often referred to as property income. Other forms of rental revenue, such as a caravan, a caravan pitch, or a houseboat, are also included.

Property income excludes revenue from a trade, such as farming, owning a hotel, or conducting a separate business from home, such as arts and crafts or hairdressing. Profits from a business are taxed as self-employment income. More information on self-employment can be found in our section on the subject.

Do I have to pay tax on my rental income?

Unless one of the appropriate reliefs or exemptions apply, property income profits are taxable.

If the reliefs or allowances do not apply to your income, you must pay income tax on any gains – in general, property income minus permissible expenses.

'Income' is usually the rent due from the renters, but payments in kind, such as gardening or cleaning the property instead of paying rent, are also taxed. See the question below for further details on calculating your rental profits.

Unless you live overseas and are a non-resident landlord, rents are normally not taxed before you receive them.

As a result, you may be required to pay tax to HMRC directly. Is it necessary to file a tax return to declare rental income? for additional information

Do I have to pay UK tax on rental income from a foreign property?

The answer is contingent on your situation. If you are a UK resident, you must normally report your income from property to HMRC.

In our migration area, you may learn more about residency and how foreign income is taxed.

When computing any amount that may be taxable in the United Kingdom, you generally follow the same principles as when calculating UK income (that is, property income less allowable expenses). If you want to, you should be able to use the property allowance. If you have paid foreign tax on the income and have a UK tax due, you may be able to claim relief against your UK tax payment.

Importantly, income from an overseas property is not combined with income from a UK property, and if you file a Self Assessment tax return, you must report it separately as foreign income.

What will be the tax rate on my rental income?

If your property income is taxable, you will be taxed at the applicable income tax rate after taking into account your employment income and any earned income, such as self-employment earnings or pension income.

If you are a non-Scottish taxpayer, you will pay the following tax rate:

• If your entire job income, other earned income, and property income all fall within your personal allowance, you will pay 0%.
• If you're a basic-rate taxpayer, you'll save 20%.
• If you're a higher-rate taxpayer, you'll pay 40%; otherwise, you'll pay 30%.
• If you're an additional rate taxpayer, you'll pay 45 percent.

See our Tax and NIC rates page for the income bands that are taxable at each rate.

If you are a Scottish taxpayer, you will pay income tax at the appropriate rates based on the Scottish income tax rates and bands. This is true even if the rented property is not in Scotland, but rather in another area of the United Kingdom. This is due to the fact that rental income is not a savings or dividend income. More information can be found in our tax fundamentals section.

You will not be required to pay National Insurance payments (NIC) on property income because it is considered 'unearned' income. If you run a bed & breakfast or a hotel, for example, you may be classified as a trader in some, usually rare, circumstances. In such circumstances, you will be required to pay the necessary NICs. If the firm is not conducted as a corporation, self-employed NICs must be paid.

What tax breaks and exemptions are available for rental income?

Taking a room in your house and renting it out

Rent-a-room relief may be offered for the first £7,500 of income from renting out a room in your primary residence in 2021/22 (also £7,500 in 2020/21). In our rent-a-room relief page, we go over this in greater detail.

Holiday rentals that are fully furnished

There are also unique requirements for furnished vacation lettings – property that is rented out to tourists and visitors for a short period of time, usually on a seasonal basis – that are not explored further here. If you have this type of income, HMRC has a helpsheet (HS253) that you might find useful.