Rental Income Tax UK: A Complete Guide for Landlords

Rental income tax is straightforward in principle and awkward in practice. You are taxed on profit, not rent, at your usual Income Tax rates, but two rules quietly reshape the bill: Section 24 removes mortgage interest as a deduction and hands it back as a thin 20% credit, and Making Tax Digital is now changing how and how often you report. This guide sets out exactly what you pay, what you can deduct, and the two dates that matter most for landlords planning ahead: MTD from 6 April 2026 and the separate property income rates from 6 April 2027.

How is rental income taxed in the UK?

You pay Income Tax on your net rental profit, which is rent received minus allowable expenses. That profit is added to your salary, pension, dividends and any other income, and the combined figure is taxed through the bands. So the rate on your rental profit depends on your total income, not on the rent in isolation. A retiree with a small pension and one let pays basic rate on most of it; the same rent in the hands of a higher earner is taxed at 40% or 45%.

For the 2026/27 tax year the rates and bands are:

Band	Taxable income (2026/27)	Income Tax rate
Personal allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	Over £125,140	45%

The personal allowance tapers away by £1 for every £2 of income above £100,000, so it is fully gone at £125,140. Rental profit counts towards that taper, which is one of several ways the Section 24 add-back (below) can do more damage than the headline interest suggests. Note also that Scotland operates its own Income Tax bands and rates on non-savings income, including rental profit, so a Scottish-resident landlord uses the Holyrood-set rates rather than the figures above.

A quick worked example. Suppose you earn £45,000 from employment and make £15,000 of net rental profit, giving £60,000 of total income. The basic-rate band runs up to £50,270 of total income, and your £45,000 salary leaves only £5,270 of it unused. The rental profit stacks on top of the salary: the first £5,270 falls in the remaining basic-rate band and is taxed at 20%, while the other £9,730 spills into the higher-rate band and is taxed at 40%. The lesson is that rental profit is taxed at the margin: it is the last slice of income, taxed at your top rate.

What expenses can landlords claim against rental income?

You deduct revenue expenses (the running costs of letting) before working out profit. The statutory test is that the cost is incurred wholly and exclusively for the property business. The common allowable deductions are:

• Letting-agent fees and property-management charges
• Landlord and buildings insurance, and rent-guarantee or legal-expenses cover
• Repairs and maintenance that restore the property (not improvements that enhance it)
• Advertising and tenant-finding costs
• Accountancy fees and certain legal and professional fees (renewing a short lease, evicting a non-paying tenant)
• Ground rent, service charges and the Council Tax or utilities you pay during void periods
• Gas-safety, electrical (EICR) and energy-performance certificates
• Replacement of domestic items (sofas, beds, white goods, carpets) under the Replacement of Domestic Items Relief, on a like-for-like basis

The full working list, with the borderline cases, is set out in our guide to landlord tax deductions. Two traps catch people every year. First, the initial repairs to a property bought in a dilapidated state are usually capital, not revenue, because you paid a lower price to reflect the condition. Second, finance costs are not on this list at all for individuals, which is the whole point of Section 24.

Capital costs versus revenue costs

The distinction decides whether a cost reduces this year's rental profit or instead reduces a future capital gain:

• Revenue (deductible now): like-for-like repairs, redecoration, replacing a broken boiler with an equivalent model, mending a roof.
• Capital (not deductible against rent): a first fitting-out, an extension or loft conversion, upgrading a basic kitchen to a high-spec one, anything that materially improves rather than restores.

Capital spend is not lost. It is added to the property's base cost and reduces the chargeable gain when you sell, so keep the invoices: they are worth 24% of their value in saved Capital Gains Tax for a higher-rate disposal.

How does Section 24 mortgage interest relief work?

Section 24 (Finance Act 2015, fully in force since 6 April 2020) is the rule that reshaped landlord taxation. An individual landlord can no longer deduct mortgage interest and other finance costs from rental profit. Instead, the interest is added back, profit is taxed in full, and you receive a separate basic-rate tax reducer worth 20% of your finance costs.

The reducer is the lower of three figures: your finance costs for the year, your rental profit, and the income that exceeds your personal allowance. That cap matters when interest is high relative to profit, because it can leave relief unused and carried forward rather than given in full this year. We unpack the calculation in detail in our Section 24 guide, and there is a step-by-step credit walkthrough for the mechanics.

Worked example: higher-rate landlord. Take rent of £20,000, mortgage interest of £8,000 and other allowable expenses of £2,000, for a 40% taxpayer.

Step	Old rules (pre-2017)	Section 24 (now)
Rent received	£20,000	£20,000
Other expenses	(£2,000)	(£2,000)
Mortgage interest	(£8,000)	not deducted
Taxable rental profit	£10,000	£18,000
Tax at 40%	£4,000	£7,200
Less 20% credit on £8,000 interest	n/a	(£1,600)
Final tax	£4,000	£5,600

The same economic position now costs £1,600 more in tax for this landlord, the difference between relieving the £8,000 interest at 40% and relieving it at 20%. A basic-rate taxpayer is broadly unaffected, because their marginal rate already matches the 20% credit. The pinch falls on higher and additional-rate landlords, and it is sharper still where the grossed-up £18,000 profit pushes someone over the £50,270 or £100,000 thresholds. This wedge is the main reason landlords ask whether to hold property through a company, where finance costs remain fully deductible: see our buy-to-let limited company guide. Incorporation is not automatically the answer (it brings its own Stamp Duty, Capital Gains Tax on transfer and corporate compliance), but it is the right question to model.

Property allowance and Rent-a-Room Relief

Two small reliefs sit at the bottom of the rental tax system.

The £1,000 property allowance

You get up to £1,000 of tax-free property income a year. If your gross rent is £1,000 or less, it is covered and usually needs no reporting at all. If your rent is higher, the allowance becomes a choice: deduct your actual expenses, or deduct the flat £1,000 instead. Claiming the £1,000 only helps where your genuine costs are below it, for instance a parking space or a low-cost room. You cannot claim the allowance and deduct expenses on the same income.

Rent-a-Room Relief up to £7,500

If you let a furnished room in the home you live in, the first £7,500 of gross receipts a year is tax-free under Rent-a-Room Relief (£3,750 each where two people share the income). Below £7,500 the income is exempt; above it, you choose between being taxed on receipts minus £7,500, or on the ordinary profit basis, whichever is lower. The relief applies only to live-in arrangements, not to a separate let property.

Making Tax Digital for landlords: what changes and when

Making Tax Digital for Income Tax (MTD for ITSA) is now live, and it changes the reporting rhythm for most landlords. The rollout is by qualifying income, tested on gross rent plus any self-employment turnover, not on profit:

Mandation date	Who is in scope	Qualifying income threshold
6 April 2026	Landlords and sole traders	Over £50,000
6 April 2027	Landlords and sole traders	Over £30,000
6 April 2028	Landlords and sole traders	Over £20,000

Because the test is gross, a landlord with £52,000 of rent and £40,000 of costs (£12,000 profit) is in scope from April 2026 despite a modest profit. In scope means keeping digital records, sending HMRC a quarterly summary through compatible software, and making a final declaration after the year end that replaces the old Self Assessment return. Jointly owned property has its own quirk: each owner tests their own share of gross rent against the threshold, so a couple splitting £60,000 of rent are tested at £30,000 each. Our guide to Making Tax Digital for property income walks through software, deadlines and the practical set-up. If you are not yet in scope, the sensible move is to digitise records now, because the £30,000 and £20,000 thresholds will catch most landlords within two years.

How to report rental income to HMRC

Most landlords still report through Self Assessment until their MTD start date arrives. The route is:

• Register for Self Assessment by 5 October following the tax year in which you first have property profit to declare.
• File the UK property pages (SA105) with your SA100 return. The online deadline is 31 January after the tax year ends.
• Pay the tax by the same 31 January, with payments on account due 31 January and 31 July where last year's bill was over £1,000.

From your MTD start date the annual property pages are replaced by four quarterly updates plus the final declaration. The detailed filing process, including the property-pages walkthrough, is in our landlord Self Assessment filing guide. Keep records (rent received, expense receipts, mortgage statements, insurance and safety certificates) for at least five years and ten months after the relevant 31 January filing deadline, the period HMRC can require you to support a return.

Capital Gains Tax when you sell

Rental income tax and Capital Gains Tax are separate charges, but they meet at disposal, so it is worth knowing the position before you sell. Gains on UK residential property are taxed at 18% within your unused basic-rate band and 24% above it (the unified rates under TCGA 1992 s.1H, as substituted by Finance Act 2024). The annual exempt amount is £3,000 per person for 2026/27, so a jointly held property gives a couple £6,000 of tax-free gain. A UK residential disposal must be reported and the tax paid within 60 days of completion through HMRC's CGT on UK property service.

This is where those capital improvement invoices earn their keep: they reduce the gain. Note too that the Furnished Holiday Lettings regime was abolished on 6 April 2025, so former holiday lets no longer access the old FHL capital gains and capital allowances advantages. For a fuller treatment, see our CGT rates on property guide.

What changes from April 2027

From 6 April 2027, property income gets its own set of Income Tax rates, two percentage points above the equivalent main rates, under Finance Act 2026 (Royal Assent 18 March 2026, ss.6-7). This is enacted law, not a proposal:

Band	Main Income Tax rate	Property income rate from 6 April 2027
Basic	20%	22%
Higher	40%	42%
Additional	45%	47%

These rates apply to property income in England, Wales and Northern Ireland; Scotland sets its own rates on non-savings income. The detail many commentators get wrong is the interaction with Section 24: the finance-cost tax reducer rises in step from 20% to 22% (FA 2026 Sch 1, amending ITTOIA 2005 ss.274AA and 274C and ITA 2007 s.399B). So a basic-rate landlord sees the reducer (22%) match the rate on their property income (22%), and no new basic-rate wedge opens. Higher and additional-rate landlords get a slightly more valuable 22% credit, while the finance-cost wedge stays the same width as today (20 points for a higher-rate landlord, 25 points for additional rate). We cover the planning response in our 2027 property income tax rates guide.

When professional advice pays for itself

For a single, unencumbered let with modest profit, the rental tax position is manageable on your own. The picture changes once any of the following apply, and these are the situations where a specialist property accountant routinely finds tax that would otherwise be overpaid:

• You hold geared property as a higher or additional-rate taxpayer and the Section 24 wedge is material
• You are weighing incorporation, or already run an SPV and need it structured efficiently
• You will cross an MTD threshold and need digital records and software in place ahead of mandation
• You own jointly and want income allocated correctly (including a Form 17 election where the beneficial split is unequal)
• You are planning a disposal and want the CGT position, base cost and 60-day reporting handled cleanly

If your situation has moved beyond a simple single let, it is worth a conversation. We work only with landlords and property businesses, so the modelling (Section 24 exposure, incorporation, MTD readiness, disposal timing) is the day job rather than a sideline. You can read more on our services page or get in touch through the form below.