Do You Need to Pay Tax on Rental Income From a Side Property?

Many business owners also invest in property, whether it’s a buy-to-let, an inherited flat, or part of a long-term wealth plan. If you rent it out, the income is taxable, but there are plenty of allowances and deductions to help reduce the bill.

Rental expense rules can be complicated

What counts as rental income

Rental income includes the rent you receive, plus any charges your tenant pays that would normally be your responsibility (like utilities or repairs).It’s usually taxed through self-assessment, separate from your limited-company income.

The property allowance

If your total rental income is under £1,000 a year, it’s completely tax-free under the property allowance. If it’s higher, you can either:

• Deduct actual expenses (repairs, letting fees, insurance, etc.), or

• Claim the £1,000 allowance instead if your expenses are minimal.

Allowable expenses

You can deduct most costs related to renting the property, including:

• Letting agent fees

• Maintenance and repairs

• Insurance premiums

• Service charges

• Council tax and utilities (if you pay them)

What you can’t deduct are improvements that increase the property’s value. For example, adding an extension or converting a loft. Those can instead reduce CGT later when you sell.

Mortgage interest

Since 2020, landlords can no longer deduct mortgage interest directly from rental income. Instead, you receive a 20% tax credit on your interest payments. This change mostly affects higher-rate taxpayers, but it still allows partial relief.

Joint ownership

If you own the property with a spouse or partner, rental income is usually split 50/50 for tax. However, you can adjust this by filing a Form 17 with HMRC if one partner actually owns a greater share, a common planning move when one spouse pays tax at a lower rate.

Filing and deadlines

You must declare rental income annually through self-assessment. The tax year runs to 5 April, and online returns are due by 31 January the following year.

The simple takeaway

Property income doesn’t have to be complicated. Keep good records of rent received and expenses paid, and you’ll only pay tax on your true profit. If you’re unsure about allowable costs or ownership splits, professional guidance can make a big difference.

Need help making sense of your taxes? JSC Accounting works with small businesses across the UK to keep things simple and compliant. Get in touch for a friendly chat about how we can help.

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