If you’ve invested in real estate through an online platform, you might be wondering: how does the government tax the income that I am receiving? Do I need to declare anything? How much tax do I pay?

This article will walk you through everything you need to know in simple terms.

Note that if you are non-UK tax resident, the tax rules will differ – so please reach out to a tax advisor/accountant to obtain advice based on your particular circumstances.

What is the difference between a fractional real estate deal and buying a property directly in your personal name?

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With traditional property investing, you’d buy an entire house or a flat directly in your personal name. But an RECF deal is different. Here, you own a share of a property through a Special Purpose Vehicle (SPV). The key differences can be summarised in the following table:

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What is a Dividend?

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Dividends are payments distributed by a company to its shareholders from its profits.

So when you acquire shares in the SPV as part of the real estate deal, you will become eligible to receive dividend payments. The dividend payments will be calculated as your share (based on your investment amount) of the profits generated from that property (both on the rental activities and the future sale of the property).

Why is Rental Income Treated as Dividends?

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As noted in the above table, the taxation of rental income is different depending on how the property acquisition was structured.

If you acquired a property directly in your personal name, you would personally pay income tax on the profits generated from the rental activities at your marginal rate of tax.

However, with a fractional real estate deal, you are acquiring shares in the SPV. Therefore the SPV will pay corporation tax on the rental profits generated, and you will personally pay income tax on the dividends received.

As a result, the income you receive personally is classified as dividend income, not property income.

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What is the difference in income tax rates between receiving rental income in my personal name (i.e. personal ownership) and receiving a dividend from the SPV (i.e. a real estate deal)?

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Below is a table summarising the different tax rates that will apply if you were to receive rental income in your personal name vs receiving dividends via a real estate deal.

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You can see from the above that the tax rates for dividends are much lower than the tax rates on the rental profits received in your personal name.

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Can you claim the property allowance (£1,000) too?

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Some of the eagle eyed amongst you may have noticed that the property allowance (£1,000) was not included in the above table. This is because with a fractional real estate deal, your income will be classified as dividend income rather than property income (as mentioned earlier in this article).

Therefore you will qualify for a dividend allowance (£500) rather than the property allowance (£1,000).

Note also that for the personal ownership scenario shown in the above table, we have assumed that the property allowance (£1,000) will not be claimed. This is because you cannot claim property expenses as well as the property allowance (you can only choose one of them). As property related expenses can tend to be over £1,000 for the tax year, we have assumed that expenses will be claimed instead of the property allowance.

Examples of tax calculations

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Below we have set out example calculations of income tax liabilities based on the following four scenarios:

• Example 1 – Person A has no source of income other than a £1,000 dividend during the tax year.
• Example 2 - Person B receives a salary of £45,000 from employment, and a £1,000 dividend during the tax year.
• Example 3 - Person C receives a salary of £85,000 from employment, and a £1,000 dividend during the tax year.
• Example 4 - Person D receives a salary of £125,000 from employment, and a £1,000 dividend during the tax year.

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Example 1 – Person A has no source of income other than a £1,000 dividend during the tax year

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Example 2 – Person B receives a salary of £45,000 from employment, and a £1,000 dividend during the tax year

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Example 3 – Person C receives a salary of £85,000 from employment, and a £1,000 dividend during the tax year

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Example 4 – Person D receives a salary of £125,000 from employment, and a £1,000 dividend during the tax year

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Do You Need to Declare Your Dividends to HMRC?

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If your total dividend income (from all sources) during the tax year is less than £500, you don’t need to do anything – no tax return, no HM Revenue and Customs (HMRC) reporting – and more importantly, no tax to pay as it will be covered by the dividend allowance.

But if your dividend earnings exceed £500, there will be reporting requirements as follows:
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1. If you earn between £500 and £10,000 in dividends during the tax year (from all sources), you must inform HMRC by either:

• Contacting the HMRC helpline;
• Asking them to adjust your tax code to account for your dividend income. As a result, the tax will be taken from your wages on a monthly basis.

Alternatively, you could choose to complete a Self-Assessment tax return for the tax year and report the dividend income to HMRC.

2. If you earn more than £10,000 in dividends during the tax year (from all sources), you must file a Self-Assessment tax return and report the dividend income there.

If this is your first time filing a Self-Assessment tax return, you’ll need to register for an online account with HMRC first.

When Do You Need to File Your Self-Assessment Tax Return?

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The UK tax year runs from 6th April to 5th April of the following year. But your tax return isn’t due immediately after the tax year ends. Instead you will have until either 31 October or 31 January following the end of the tax year to file your Self-Assessment tax return (depending on whether you file a paper tax return or an online tax return).

Let’s say you invested in a real estate deal in March 2024 and your dividend income starts coming in from June 2024. That will mean your income will be taxed in the 2024/25 tax year. As a result, the important tax deadlines to remember are as follows:

• October 5^th, 2025: You must tell HMRC you need to complete a return by registering for Self-Assessment
• October 31^st, 2025: Deadline if you’re sending a paper tax return
• January 31^st, 2026: Deadline for online tax returns and paying any tax owed.

These deadlines are very important because missing the deadline can mean interest and penalties being levied by HMRC. So mark your calendar or set reminders well in advance!

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Final Thoughts

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Understanding how your RECF returns are taxed isn’t as complicated as it seems. Just remember:

• Your fractional real estate income is taxed as dividends, not rental income;
• You get a £500 tax-free allowance for the tax year;
• Your total income from all sources during the tax year determines your tax rate(s);
• If you earn more than £10,000 in dividends during the tax year, you will need to file a Self-Assessment tax return in order to report it to HMRC;
• Make sure you file the tax return before the deadline to avoid interest and penalties!

Remember, tax rules can change, so always check the latest updates on gov.uk or speak to a tax advisor or an accountant if you’re unsure. The above figures and tax rates are all based on the 2025/26 tax year and are accurate as at the date of this article being published.

So now you know exactly what to expect and have clarity on how to proceed – and hopefully that also means no nasty surprises from HMRC!

If you have any queries, please reach out and we will be happy to point you in the right direction.

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This guide was prepared by Ruzwan Boota – Tax Director at I Will Solicitors Limited, which is a wholly owned subsidiary of Wahed Inc. I Will Solicitors Ltd provides Islamic Wills, Probates and Tax Advisory services.

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Frequently asked Questions