Posted: 13 / 09 / 2016


When renting out a property you have to inform HMRC as you may have to pay income tax. If you do not inform HMRC you could be charged a penalty.

Profits are worked out as:

Total Rental Income X
Less: Allowable expenses (X)
Rental Profit / Loss X

In addition to paying income tax, you may need to pay Class 2 National Insurance.

Do I need to complete a tax return?

When renting out a property you personally own you may need to complete a self-assessment tax return (SATR). If you earn between £2,500 – £9,999 after allowable expenses or £10,000 or more before allowable expenses you will need to complete a SATR. For more information about self-assessment tax returns see our Tax Return guide.

Do I have to pay national insurance?

If what you do counts as running a property business you will also have to pay Class 2 National Insurance. HMRC will deem you to be running a property business if all of the following apply;

  • Being a landlord is your main job
  • You rent out more than one property
  • You’re buying new properties to rent out

You don’t pay National Insurance on your rental income if you’re not running a property business – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.

Head of Tax, David Evans gives his expert view:

Over the last year or so we’ve seen some significant changes in the way property income is taxed. The main reason for this is that the Government are concerned that people buying second homes are squeezing out families who can’t afford a home to buy. According to The Council of Mortgage Lenders, 2015 saw a jump of nearly 40% in buy to let mortgages. By comparison, mortgages to first time buyersrose by 10% over the same period.

There’s a lot of debate amongst commentators at the moment as to whether these changes will have the effects intended by the Government; namely to free up housing stock for first time buyers. We’re yet to see whether landlords will instead pass on these additional tax costs to tenants by way of increased rents.

The recent announcements, combined with HMRC’s ongoing Let Property Campaign, act as a clear signal that the Government is clamping down on the residential letting industry. It’s a really important time for clients with rental properties to speak to their advisors and understand how these changes will affect them.

For more information on taxation of property income, you can download our free guide

Have any questions about the property income tax?

Click below to speak to our Tax expert, David Evans, or call us on 0161 236 9077.