How does tax affect accidental landlords?

How does tax affect accidental landlords?

People often become accidental landlords for one of many reasons.

Whatever the reason for you becoming an accidental landlord, you need to understand and seek advice early on the tax implications of being a landlord as you will need to consider areas such as income tax, registering for self-assessment, record keeping and later down the line Capital Gains Tax.

In this blog, we look at the tax areas you need to be aware of when becoming an accidental landlord and where to seek tax advice to ensure you fulfil all the requirements of HMRC and don't end up owing the tax man money or worse, facing penalties.

 

What is an accidental landlord?

There are a lot of reasons that people may end up with an additional property or a property they decide not to live in as their main residence.

This is often when people decide to rent out the property as a source of extra income. Some property owners feel they have no other choice but to rent their property out, making them an accidental landlord.

There are many reasons why people face this situation including:

• Moving in with a partner, leaving a second property to rent.

• Relocating for work in the UK or abroad for a period of time.

• Inheriting a property, they can't or don't want to sell immediately.

• Downsizing without the need to sell a current property.

• Moving to a bigger home without the need to sell a current property.

Renting out a property can be good for generating additional income, but you will need to pay tax on your rental income, which means making sure you’re registered for self-assessment and completing a tax return each year.

 

What happens when you become an accidental landlord?

If you find yourself in this position, you will need to consider several areas, such as:

• Mortgages - if you currently have a mortgage, you will need to speak to your current lender about your changing circumstances and either get approval to rent the property for the short term or switch to a buy-to-let mortgage. This could change your mortgage payments.

• Insurance - you will need to take out some kind of landlord insurance, especially if you have a mortgage on the property.

• Tax - Tax changes should be one of your main concerns as an individual landlord. Tax rules can be complicated, and you need to consider income tax, capital gains tax and stamp duty before making any key decisions about the property and whether to rent it out. If you are not already, you will need to register (or get an accountant to register) for self-assessment with HMRC, in order to report additional income from rental and to understand and pay the additional tax you will owe.

• Local authority registration - Some local authorities require you to register as a landlord and you may have to pay a fee for this.

• Health and Safety - there are strict rules now for landlords to follow to ensure the property they rent is safe, including gas and electrical equipment safety and energy performance

 

What taxes are accidental landlords liable to pay?

It is likely that you will need to pay tax on any profit you make from renting out property. However, the tax you pay and how you pay it will differ depending on if you own the property personally or via a limited company.

In this blog we will look at the tax implications if you own the property personally.

 

Registering for self-assessment

As a private landlord, you must pay income tax on your rental profits, which is the amount that’s left once expenses allowed by HMRC have been deducted from the total rental income (see below about allowable expenses).

The first step if to register for self-assessment with HMRC (if you are not already self-employed and not already registered). You can do this yourself online with HMRC or seek advice from an accountant who can help you with the process.

It is wise to do this before renting out your property, if you don't, you must do this by 5 October following the tax year (6 April to 5 April) in which you received taxable rental profits, otherwise you risk paying a penalty.

After you register, you’ll get your Unique Taxpayer Reference (UTR) by post in 10 working days (21 days if you’re abroad). You can then sign in to your personal tax account to activate your self-assessment. You’ll need your UTR number.

 

Submitting a self-assessment tax return

Currently, self-assessment tax returns must be completed once a year by January 31st, to cover the financial year up to April of the previous year.

From 6 April 2026, for individuals with an annual income above £10,000, the Government's Making Tax Digital for Self-assessment scheme (MTD) will require those using self-assessment to declare their income digitally every quarter. You will need to do this via an accountant using MTD-compliant software.

We recommend you use an accountant to complete and file your self-assessment tax return for you to ensure you are claiming the right reliefs, expenses and paying the right amount of tax to avoid issues with unexpected tax bills and HMRC penalties for non-compliance.

 

What rental income is taxable?

For property you personally own, you can get up to £1,000 each tax year in a tax-free allowance for property. This is known as your 'property allowance'.

You may consider or own the property jointly with a relative, partner or spouse, in which case you will be taxed according to your share of the property and share of the rent you receive. If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.

You must tell HMRC if you have:

• gross property income over £1,000 up to £2,500 - contact HMRC

• property income over £2,500 - register for self-assessment

You must remember when you submit a tax return that any profit from the property will need to be added to any other income or earnings you receive from elsewhere as well. However, you will be able to deduct some 'allowable expenses', which are costs for running and renting the property, from the income you earn from the property, which will lower your tax bill (see below).

Income tax is payable by individuals earning above the income tax threshold (see below re: income tax rates and thresholds).

 

Income tax rates and allowances 2024/25

If you own the property you are renting personally, then you will need to be aware of income tax rates and allowances, as your rental profit will be taxed at these rates. Any other income from a job, self-employment, other investments etc., needs to be added to your rental income profit.

Rates for 2024/25 are below:

• The amount you can earn before you start paying income tax is your personal allowance is currently £12,570 and is frozen at this rate until 2028.

• In the 2024-25 tax year, individuals pay 20% income tax on their total income between £12,571 and £50,270.

• If you earn above £50,271 in income in a year, you will pay 40% income tax on income between £50,271 and £125,140.

• For income over £125,140 you will pay the additional rate of income tax of 45%.

 

What are allowable expenses for accidental landlords?

You can reduce your tax bill by claiming for some of the expenses you incur from the property you are renting out. These expenses are the day-to-day costs of managing your rented property and for improvement works that add value to the property.

Allowable expenses include:

• Landlord insurance – buildings, contents and public liability

• Letting agent and management fees

• Ground rent and service charges

• Cleaning and gardening fees which you pay for

• Accountants’ fees

• The cost of advertising for tenants

• Stationery and phone calls are used directly for your property business.

You can also claim what’s known as ‘relief for replacing domestic items’. This relief applies if you replace furniture, carpets or appliances for use by your tenants – but not when you buy them in the first place.

You can’t claim mortgage repayment costs as an allowable expense.

 

Capital Gains Tax (CGT) on rental property

CGT is not applicable if you keep and rent out the property. However, CGT will be payable if you sell a rental property that has risen in value.

Currently, you only have to pay CGT on your overall gains above your tax-free allowance, which is £3,000. 

CGT is charged on residential property at 18% for basic rate taxpayers and 24% for those taxed at the higher rate.

You must report and pay capital gains tax on most sales of UK property within 60 days.

If the property you're renting out and now selling was once your main residence, you won't pay CGT on the total increase. A calculation is made instead based on how long you lived in it plus an additional 9 months.

When you sell the property, you can deduct certain expenses from the gain you have made from the sale to reduce your CGT bill.

For example, allowable deductions are:

• Estate agent or auctioneer fees

• Solicitor fees

• Advertising costs for finding a buyer

• Costs of any improvement work that adds value (if you’ve added an extension, for example)

• Costs of a surveyor

 

Frequently asked questions about accidental landlords

To learn more about accidental landlords, check out our FAQs below or contact us today:

What records should landlords keep?

You’ll have to keep accurate records of rent received and your expenses incurred to work out the profit you’ll pay tax on.

The records you should keep could include:

• the dates you let out the property

• rent books and rental payments received

• receipts and invoices for expenses

• any income from services you give to tenants (for example, if you charge for maintenance or repairs)

• bank statements (it may be better to keep a separate bank account to your main current account for all your rental income and expenses as it is easier to track income, expenses and profit for your tax return)

• mileage logs (for journeys that are solely for your property business purposes)

 

How can I avoid capital gains tax on the sale of rental property?

If you sell the property and make a gain of £3,000 or less, then you may be able to avoid CGT by using your Annual Exempt Amount (see above) if you have no other gains in that tax year.

If you live in or nominate the property as your principal/main residence, you can then claim Private Residence Relief on any eventual sale, and this may reduce your CGT bill (depending on the period it was your main residence) or avoid CGT if you live in it and don't rent it out.

Seek professional advice from a Chartered Accountant such as Haines Watts.

 

Are accidental landlords able to claim tax relief, allowances and expenses?

In answer to this question, yes, accidental landlords can claim tax relief and expenses, as stated above in this blog. In summary, these are:

Tax relief and allowances:

You can get up to £1,000 each tax year in a tax-free allowance for property. This is known as your 'property allowance'.

The amount you can earn before you start paying income tax is your personal allowance is currently £12,570 and is frozen at this rate until 2028.

You only have to pay CGT on your overall gains when you sell the property above your tax-free allowance, which is £3,000.

Expenses:

There are allowable expenses you can deduct from rental income and from the profit on sale of the profit that can reduce your income tax bill and your CGT bill.

 

As an accidental landlord, do I have to pay additional stamp duty if I buy another house?

If you decide to retain your current property and you buy another home, you’ll be liable to pay a higher rate of Stamp Duty Land Tax (SDLT). You will need to pay 3% on top of SDLT rates if buying a new residential property and it means you’ll own more than one property.

 

Understand your tax position with Haines Watts

Becoming a landlord, when it is not your main job, can be daunting and complicated.

Tax changes are frequent, so understanding how much tax you need to pay, what to declare, what to claim as expenses and being compliant with HMRC can be complex.

At Haines Watts, we advise many clients when they find themselves in a position of renting out a first property.

We can advise on:

• Self-assessment

• Income tax

• Capital Gains Tax

• Tax planning

• Inheritance tax

 

In summary

Becoming an accidental landlord can generate income, but you will need to seek professional advice about your tax position if you want to be compliant with HMRC and maximise your rental returns.

For further help and advice on becoming an accidental landlord, then contact our team in Chester, Liverpool, or Wirral.