How Much Can I Earn Through Property Rental Before Paying Tax


If you own a second property and are considering renting it out, either to help pay off the mortgage or to simply provide you have a second income, you will probably be wondering how much tax you’ll have to pay on that rental property.

As with most things tax-related, this isn’t an altogether simple calculation…

Do I need to file a self-assessment tax return?

If you’re currently renting a property, the answer is probably yes.

You need to complete a self-assessment tax return if you earn between £2,500-£9,999 after ‘allowable’ expenses, or £10,000 before allowable expenses.

Allowable expenses

You will only pay tax on your rental income after allowable expenses have been deducted, but what are ‘allowable expenses’?

Allowable expenses are any cost you have incurred that are wholly and exclusively for the purposes of renting out the property.

Some common allowable expenses you might incur as a landlord include:

Expenses you cannot claim for a deduction include:

Currently, you are able to claim a percentage of your mortgage interest (your mortgage provider will usually send you a yearly mortgage statement that will help you to work out how much you can claim), however this is being phased out in favour of a 20% tax reduction on mortgage interest. This will come into full effect from April 2020.

How much tax will I pay?

Rental income (after allowable expenses have been deducted) is taxed at the same rate as regular income.

That is, 20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate tax payers. Note that, if your rental income pushes your total income above a certain threshold, some of that income will be taxed at a higher rate. For example:

Sarah earns £40,000 per year through her job, and £10,000 per year through her rental property, after allowable expenses.

She will pay 20% on everything up to £45,000, but 40% on the final £5,000.

 

If you want to find out more about your tax obligations as a landlord, why not check out the free Tax & Landlords eBook we’ve put together? It covers everything you need to know!

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