Rental income in the UK is taxable above the £1,000 property income allowance. Whether you use the flat £1,000 allowance or deduct actual expenses depends on your costs. The Rent a Room scheme provides a separate £7,500 tax-free allowance for renting a furnished room in your own home.
The £1,000 property income allowance
If your total rental income from all property is £1,000 or less per year, you do not need to declare it. Above £1,000, you can either use the £1,000 flat allowance (deduct it from income) or calculate actual allowable expenses and deduct those — whichever is higher.
The Rent a Room scheme
If you rent a furnished room in your own home, the Rent a Room scheme allows you to earn up to £7,500 per year tax-free. Income above £7,500 is taxable. The scheme is opt-in — you claim it on your Self Assessment tax return.
Taxing standard rental income
Rental income is added to your other income and taxed at your marginal rate. Allowable deductions include: letting agent fees, landlord insurance, maintenance and repairs (not improvements), utility bills you pay, and mortgage interest (restricted since April 2020 to basic rate tax reduction for individual landlords).
The mortgage interest restriction
Since April 2020, individual landlords cannot deduct all mortgage interest before calculating tax. Relief is given at 20% as a tax reduction. This significantly increased effective tax rates for higher-rate taxpayer landlords. Properties in a limited company are not subject to this restriction — consult an accountant about whether incorporation suits your situation.
Self Assessment requirement
If gross rental income exceeds £2,500 per year (before deductions), register for Self Assessment. Register by 5 October of the first tax year you receive rent. File your return by 31 January the following year.
General guidance only — not regulated financial advice.