Reporting income from property

Property ownership can be a rewarding investment, but understanding how to report your rental income correctly is essential—both for staying compliant with HMRC and for minimising your tax bill. Whether you’re letting out a spare room, a buy-to-let property, or have inherited a rental asset, the rules around reporting property income can seem complex. In this post, we’ll break down what you need to know about declaring rental income in the 2024/25 tax year and explore some practical steps to keep your records in order.

Understanding what counts as property income

Property income covers any money you receive from letting out land or buildings—this includes residential lettings, commercial properties, furnished holiday lets, and even income from renting out a parking space or storage area. It’s important to note that HMRC takes a broad view of what constitutes taxable property income. You must declare rental income even if you’re letting out a room in your own home, though the Rent-a-Room Relief scheme may help reduce your tax bill if you meet the criteria.

The key principle is this: any payment you receive for the use of your property is income. This includes rent, deposits (when they’re used as compensation), and payments for services like providing utilities or furniture. If you’re unsure whether something counts, it’s better to declare it and ask your accountant than to risk a compliance issue down the line.

Recording expenses and understanding allowable deductions

One of the most common mistakes landlords make is forgetting to claim all their allowable expenses. The good news is that you can offset many costs against your rental income, which reduces your taxable profit. Allowable expenses include mortgage interest (though not capital repayment), council tax, insurance, repairs, maintenance, lettings agent fees, and professional services like accountancy fees.

There’s an important distinction between repairs and improvements. You can claim repairs—fixing a leaking roof or replacing worn-out carpets—but not improvements that add value to the property, such as a new extension. If you’re renovating, your accountant can help you work out which costs fall into each category.

As of the 2024/25 tax year, landlords with residential properties must also be aware of the restriction on mortgage interest relief. Rather than getting relief at your marginal tax rate, relief is now given at the basic rate of 20%, regardless of whether you’re a higher-rate taxpayer. This can significantly increase your tax liability, so it’s crucial to factor it into your calculations.

Keep every receipt and invoice. Digital records are fine—many accountants now use cloud-based systems—but you must be able to evidence what you’ve spent and why.

Self-Assessment and filing deadlines

If you’re self-employed, have other income streams, or your rental profits exceed £1,000 per year, you’ll need to file a Self-Assessment tax return. For the 2024/25 tax year, the filing deadline is 31 January 2026 for paper returns and 31 January 2026 for online returns (though filing earlier is always wise).

You’ll report your property income and expenses on the ‘UK property’ pages of your Self-Assessment return. If you own multiple properties, you report them together as a single profit or loss, not separately. You’ll also need to pay any tax due by 31 January following the end of the tax year.

If your tax return is late, HMRC will issue penalties—starting at £100 for returns up to three months late, and increasing thereafter. If you’re worried about meeting the deadline, get in touch with an accountant early rather than trying to rush it at the last minute.

Capital Gains Tax considerations

It’s worth noting that when you sell a property that wasn’t your main residence, you’ll likely face Capital Gains Tax (CGT). Whilst rental income is reported through Self-Assessment, gains from selling the property are a separate matter. The annual exemption for CGT in 2024/25 is £3,000, and higher-rate taxpayers pay 20% on residential property gains above this threshold.

Planning ahead for a potential sale—keeping records of any improvements you’ve made and understanding your tax position—can save you money later.

Getting it right

Reporting property income doesn’t need to be stressful, but it does require attention to detail and good record-keeping. Many landlords find that working with an accountant not only ensures compliance but also identifies tax-saving opportunities they might otherwise miss.

For tailored advice, contact Severn Accounting—we’re here to help.