Reviewed by RIFT's Quality and Service Manager, Edward Waine ATT

If you earn money from letting out a room, property or even your driveway, that’s classed as rental income and it could have tax implications. Many people don’t realise they need to declare this income, or that they might be owed money back. Whether you’re a first-time or part-time landlord, RIFT makes it easy to understand what you owe and what you could reclaim.

What counts as rental income?

Rental income includes more than just the rent your tenants pay. HMRC treats a wide range of payments as taxable income when you let out property or space, even if it’s part-time or informal. Common examples of rental income include:

  • Rent paid by tenants or lodgers
  • Utility bills or service charges covered by your tenant
  • Earnings from short-term holiday lets
  • Income from renting out garages, driveways or storage spaces

If you’re receiving any of these, you might need to declare the income to HMRC, but that doesn’t always mean paying tax on the full amount. There are allowances and expenses that can reduce your tax bill, and in some cases, you might not owe any tax at all.

Do I have to pay tax on rental income?

You only pay tax on rental income if your profits go above certain thresholds. It’s not about what you earn in total, it’s what’s left after allowable expenses are deducted.

Everyone gets a £1,000 property allowance each year. If your rental income is under this, you usually don’t need to declare it. Go over the threshold, and you’ll need to report it to HMRC, even if no tax is due.

If your rental income is taxable, you’ll need to file a Self Assessment tax return. This is where you detail your income, expenses and allowances, and HMRC works out what you owe.

Not sure where you stand? RIFT can help make sense of it all.

What is the property allowance?

The property allowance is a tax-free amount that lets you earn up to £1,000 a year from property income without paying tax or even telling HMRC about it. This is how it works:

  • If your rental income is £1,000 or less in a tax year, you don’t need to declare it.
  • If it’s over £1,000, you must report it and choose whether to:
    • Deduct the £1,000 allowance
    • Deduct your actual expenses, if they’re higher.

How do I declare rental income to HMRC?

If your rental income goes over the £1,000 property allowance, or you’re claiming expenses, you’ll need to file a Self Assessment tax return. This is how HMRC keeps track of what you’ve earned and what tax you owe. Here’s what to do:

  1. Register for Self Assessment with HMRC if you haven’t already.
  2. Complete your tax return, including details of 
    • Rental income received
    • Allowable expenses
    • Any allowances you're claiming
  3. Submit your return and pay any tax due by 31 January following the end of the tax year. :

If you’re not used to dealing with Self Assessment, it can feel overwhelming, but RIFT takes care of the whole process for you. We’ll make sure everything’s done right, on time and with your best interests at heart. Use our free rental income tax calculator to get an instant estimate of how much you might have to pay.

Rental income tax calculator

Can I claim a tax refund for rental income?

If you've overpaid tax on your rental income, you could be due a refund. This often happens when:

  • You didn't claim your full allowable expenses
  • You didn't use the £1,000 property allowance
  • You declared income but weren't actually over the rental income tax threshold
  • You were tax under PAYE and didn't realise you needed to offset your rental losses

These mistakes are especially common for accidental landlords or people new to letting. The good news is that you can usually claim a refund for up to four years.

RIFT can check your situation, handle your paperwork and help you get back what you’re owed. Use our rental income tax calculator to get started.

What expenses can I claim against rental income?

If you’re earning more than the £1,000 property allowance and choosing to deduct expenses instead, it’s important to know what counts. HMRC only allows certain costs to be offset but they can make a big difference to your tax bill. These are some common allowable expenses for rental income:

  • Letting agent and management fees
  • Property maintenance and repairs
  • Buildings and contents insurance
  • Council tax, gas, electricity and water, if you pay them as the landlord
  • Legal fees for letting agreements
  • Accountancy or tax advice related to your rental income

You can’t claim for buying the property, mortgage repayments, or major upgrades. But many landlords miss out on genuine expenses they can claim.

What's the difference between rental income and the Rent a Room scheme?

Not all rental income is treated the same. If you’re renting out a furnished room in your main home, you might qualify for the Rent a Room scheme instead of the standard property income rules. Here’s the key difference:

  • Rent a Room scheme:
    • Up to £7,500 tax-free income per year.
    • Only applies to furnished rooms in your main residence.
    • No need to declare income if you earn under the threshold.
  • Standard rental income:
    • Applies to second properties, holiday lets, garages, or driveways.
    • Only £1,000 property allowance.
    • Income over that must be declared.

You can’t use both schemes at the same time, so choosing the right one matters. RIFT can help you work out which gives you the best result.

What if I haven't declared rental income?

If you’ve been earning rental income and haven’t told HMRC, it’s important to act. But don’t panic. You’re not alone and there’s a way to put things right. Here’s what you need to know:

  • HMRC can charge penalties and interest for undeclared income
  • The longer it’s left, the higher the potential costs
  • It’s always better to come forward than wait to be contacted

Many people miss the rules without meaning to, especially accidental landlords or those earning small amounts. RIFT can help you declare late income, avoid unnecessary penalties and get your tax back on track.

How can RIFT help?

If you’re earning rental income, it’s vital to understand how it affects your tax, whether you’re letting out a room, a flat or just your driveway. The rules can be confusing, especially if you’re new to it all. But getting it right doesn’t have to be hard.

At RIFT, we make sure you’re not overpaying, missing allowances or risking penalties. We’ll help you claim back what you’re owed and keep everything above board with HMRC.

Think you might’ve overpaid tax on rental income? Let’s get your money back. Get in touch to begin.

Rental income taxes - Common FAQs

Do I pay tax on rental income if I have a mortgage?

You will pay tax on rental income even if you have a mortgage. However, you can claim mortgage interest as a tax-deductible expense, which can help lower your taxable profit. Keep in mind that this relief is now limited to a basic rate tax credit, reducing the amount you owe.

Can I offset my mortgage interest against rental income?

You can offset mortgage interest against your rental income, reducing your taxable profit. However, this relief is now limited to a basic rate tax credit, meaning you can only claim 20% of your mortgage interest costs, which is deducted from your final tax bill rather than from your rental income.

Do you pay NI on rental income?

You don’t pay National Insurance (NI) on rental income. Rental income is treated as part of your overall income for tax purposes, but it’s not subject to NI contributions. You just need to report it on your Self Assessment tax return and pay the appropriate income tax on your profits.

Free National Insurance calculator

Do I have to pay tax on the money I make if I sell a rental property?

Yes, you will need to pay Capital Gains tax on the profits you make from the sale. If you're interested to know use our Capital Gains Tax calculator for an instant estimate. 

Capital Gains Tax Calculator