How is rental income taxed?

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    How is rental income taxed?

    I thought I was pretty clear on this and that rental income, leaving aside issues such as allowances, mortgage interest etc, is taxed the same as earned income: e.g. it can be offset by your personal tax allowance and if you are a basic rate tax payer, then it is taxed at 20% and if you are a higher rate payer then 40%. This seems to be supported when I have a look on the net. For example -

    However, a relative cut an article out of the paper, which was written by an outfit called Jenner Property Services. In the article a question is raised about the letting out of a deceased relative's property. In the response, Jenner states: "The final point to consider is...the fact that rental income is taxed differently from earned income."

    I note that it states: "is taxed differently", not "may be taxed differently". The article does not attempt to clarify exactly how rental income is taxed.

    The HMRC site, as far as I can see, states that rental income needs to be declared and will count toward your tax liability for the year, but I cannot see any statements as to whether it is or is not different to earned income, income from savings etc.

    Does anyone know the definitive answer?


    It is taxed differently, it is correct to say that it is.

    Earned income relates to PAYE or to self employment income. You pay income tax and national insurance on this income.

    Property income from the letting out of property, is taxed at the same rates of tax as earned income in order to work out this additional element of income tax amount due. It does not get taxed with national insurance.

    As such, you fill out the property pages of your tax return so that the income and expenses related to the letting of the property are separate to any Earned Income such that national insurance is calculated properly.

    Another difference is what can be done with any losses created by each but I won't go into here.

    The personal allowance, 20%/40%/50% rates all apply to earned income and income from property combined.
    I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

    That also means I cannot share in any profits from any decisions made!


      Thanks for the clarification. I think the concern from the person who handed me the article was that I might be stung for a higher tax because of the way the money was earned, but this appears not to be the case.


        The current (2013-14) rates of Income Tax are 20%, 40% and 45%.

        Earned Income is also subject to NI (National Insurance). But it seems that HMRC are also attempting to levy Class 2 NI on individuals who have a portfolio of properties.


          Thanks King_Maker.


            You may be taxed at 40%. The marginal tax rate is calculated by adding all your income ( that is PAYE and rental income ) together, if this, minus your personal allowance, exceeds the 40% threshold that the amount of the excess will be taxed at 40%. Regards Peter


              Thanks TaxationPete


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