How to Pay Tax on Your Rental Income
As a property owner, you are required to pay rental income if the taxable amount is above the personal allowance. Any profit that you make as a landlord is subject to income tax.
However, if your rental income is earned through a corporate entity, the company has to pay tax on the taxable income and is subject to corporation tax.
How to Calculate Your Rental Income Tax as an Individual Landlord
The rate at which Rental Income is taxed varies depending on your income tax band. There could be multiple sources of income, so it is essential to calculate your income accurately.
The amount of tax that you need to pay for your rental income is calculated based on the income tax rates that apply to your own personal income.
It is, however, important to note that combining your rental income with other sources of income may cause you to fall into a higher tax bracket than usual.
What are the Income Tax Rates for 2023/24?
| Band | Taxable income | Tax rate |
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
How to Report Your Rental Income to HMRC
Landlords are responsible for reporting their rental Income to HMRC themselves through the help of a self-assessment tax return.
The self-assessment tax return must be filed before the due date, which is typically on the 31st of January following the UK tax year (April 6th to April 5th).
How to Pay Tax on Your Rental Income Through a Limited Company
Owning a property through a limited company is gaining popularity as it provides some protection from legal responsibilities and provides some tax benefits.
If you own a property through a limited company, you are subject to Corporation Tax instead of Rental Income Tax.
The Corporation Tax must be filed to HMRC every year no later than nine months and one day from the end of the accounting year. If, for some reason, the company closes down, then the said company will have 12 months after the closure of its accounting period to submit its Corporation Tax Return.
Don’t forget to check our complete guide on Tax on Rental Income for a more in-depth analysis.
