How to Calculate Tax on Rental Income

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If you are wondering that you can claim expense of a new counter-tops, you had installed in your rental home or the cup of coffee you bought for your tenant against rental income of a property? This guide lists most of allowable expenses and will help you calculate your rental income.

How to Calculate Taxable Rental Profit on Your Property Lettings

To determine the taxable profit or loss of your rental properties:

  1. Add together your rental income from ALL your properties.
  2. Add together your allowable expenses from ALL your properties.
  3. Subtract your allowable expensesfrom your rental income.

*Note: Foreign rental income on property must be declared as separate block of Income from Overseas in Self-Assessment Tax Return.

You should also know:

  • You can deduct expenses from the rental income from the other property. You must pay tax on any profit.
  • You must apply for a Class 2 National Insurance if being a landlord is your main job, you rent out multiple properties, and your profits are over £6,205per year for 2018-19.


How to Calculate Rental Income

Your income consists of the rent you receive from your tenants and any funds you receive for covering varied service charges.

Depending on the rental agreement, your income from rents could include:

  • Rent for the letting of your property (e.g. houses, flats, apartments, office space, etc.).
  • Permits associated with your property (e.g. parking permits, sporting rights, etc.).
  • Fixed service charges (e.g. fees for maintaining communal areas, utility charges, etc.).
  • Variable service charges (e.g. arranging property repairs).
  • ‘Sinking’ funds (e.g. slush fund for emergencies, unexpected structural maintenance, etc.).
  • Any amount of money received for the use of furniture, furnishings, etc.
  • Reverse premiums and deemed premiums.
  • Property insurance.


If you have received any payments for any services that a landlord does NOT normally provide (e.g. laundry services, house cleaning, Internet etc.), this income should be taxed as trading income instead of rental income.

Note: you’ll need to inform your tenant if your service charges require your tenant to pay over £250 for planned work or £100 per annum for work in progress (lasting more than 12 months).

How to Determine Allowable Expenses

You can offset some of your rental property’s costs by claiming any expenses you incur wholly and exclusively for your rental property.

Alternatively, if you incur an expense that is only partially for your rental property, but you can calculate a definite proportion used wholly and exclusively for your property business, you are able to deduct that proportion. You can consult HMRC’s Business Income Manual for more information.

Quick reference table for allowable expenses:

Expenses that can be claimed:

  1. Home Maintenance Cost
  2. Interest on mortgage – Tax relief will be reduced to Nil from 5th April 2020
  3. Management fees Paid to Letting Agents
  4. Ground Rent
  5. Service Charges including Bills
  6. Council Tax
  7. Landlord Insurance

Expenses that cannot be claimed

  1. Home Improvement costs
  2. Full cost of Loan or Mortgage used to repair Property
  3. Management fees paid to Landlord
  4. Capital Expenditure

Additionally, you may be able to claim:

Capital Allowances –You can claim capital allowances on furnished holiday homes and commercial properties, provided you meet certain requirements.

Wear and Tear Allowance – If your residential letting is furnished, you can claim 10% of the net rent as a “wear and tear allowance.” Net rent is the total rent received less costs a tenant usually pays (e.g. Council Tax) have been deducted.

If you are a landlord with property portfolio, then it is advisable to seek professional help and advice . This could help not only save your business but will also save money future and protect your assets. Call our tax accountants today or just fill in the form below.


Our blogs and articles are for information only. If you need help with your specific tax problem or need advice for your business please call us on 0800 135 7323