Rental Income Tax UK: How Landlords Are Taxed & How Much

Rental income is taxable in the UK once it passes the £1,000 property allowance, and it's taxed as part of your overall income at your marginal Income Tax rate. You pay tax on your rental profit — the rent you receive minus allowable expenses — not on the full amount your tenants pay.

This guide explains how rental income is taxed, how much tax you're likely to pay for the 2025/26 tax year, how mortgage interest is treated under Section 24, and when you need to tell HMRC. Worked examples run through a basic-rate landlord, a higher-rate landlord, and someone who is both employed and a landlord.

Do You Pay Tax on Rental Income?

Yes — in most cases landlords pay tax on rental income, but only on the profit (rent minus allowable expenses) and only once it passes the £1,000 property allowance. If your total income stays within your Personal Allowance, you may still owe nothing.

More precisely, rental income is taxable when both of the following apply:

Your gross rental income for the tax year is more than £1,000 (the property allowance, unchanged for 2025/26).
Your rental profit, added to your other income, takes your total above your tax-free Personal Allowance (£12,570 for 2025/26).

If your gross rental income for the year is £1,000 or less, it's covered by the property allowance — you pay no tax on it and have nothing to report for that income alone. Above £1,000, the profit is taxable, though you may still pay nothing if your total income stays under the Personal Allowance.

How Is Rental Income Taxed in the UK?

Rental income doesn't have its own tax rate for 2025/26. Instead, HMRC adds your rental profit on top of your other income — employment, self-employment, pensions, savings — and taxes it at whatever band that profit falls into.

The calculation runs in three steps:

Work out your rental profit: rental income minus allowable expenses (or minus the £1,000 property allowance).
Add that profit to your other taxable income.
Apply the Income Tax bands, so the profit is taxed at your marginal rate — 20%, 40%, or 45%.

Mortgage and other finance interest is handled separately through a 20% tax reducer rather than as an expense — see the Section 24 section below. From April 2027, rental profit will move to its own set of property tax rates, covered in the forward-looking note near the end.

What Counts as Rental Income?

Rental income is more than the monthly rent figure on the tenancy agreement. For tax purposes, you count:

Rent payments from tenants.
Charges for services you provide, such as heating, hot water, or cleaning communal areas.
Charges for furniture and equipment in a furnished let.
Insurance payouts that cover lost rent.
Some grants received towards repairs.

A few things don't count as taxable income. Deposits held purely as security aren't income unless you keep part of one (for example, to cover damage or unpaid rent). Income from letting a room in your own home falls under the separate Rent a Room scheme, which has its own allowance.

Tax-Free Allowances for Landlords

Three allowances can reduce or remove the tax on rental income. They apply in different situations, so it's worth knowing which one fits.

The £1,000 Property Allowance

The first £1,000 of gross rental income each tax year can be tax-free. This is the property allowance (£1,000 for 2025/26), and it works in two ways:

Full relief: If your gross rental income is £1,000 or less, it's tax-free and you don't need to tell HMRC about it.
Partial relief: If your income is more than £1,000, you can deduct the £1,000 allowance from your gross income instead of claiming actual expenses.

You choose one approach — the property allowance or actual expenses — you can't use both. The allowance is usually the lower-tax option when your total allowable expenses are less than £1,000; otherwise, claiming expenses gives a lower taxable figure. Our property allowance guide works through the choice in detail.

Approach	Best when
Property allowance (£1,000)	Your allowable expenses are under £1,000
Claiming actual expenses	Your allowable expenses exceed £1,000

Your Personal Allowance

Everyone has a Personal Allowance of £12,570 for 2025/26 — the amount of total income you can receive before any Income Tax is due. Rental profit that falls within your unused Personal Allowance isn't taxed. The allowance reduces by £1 for every £2 of income above £100,000 and reaches zero at £125,140.

The Rent a Room Scheme

If you let a furnished room in your own home, the Rent a Room scheme gives a tax-free threshold of £7,500 a year (£3,750 each if two people share the income). This is far more generous than the property allowance but only applies to lodgers in your main home, not to a separate rental property. See the Rent a Room scheme guide for who qualifies.

Rental Income Tax Rates for 2025/26

The amount of Income Tax you pay on rental profit depends on the band it falls into once it's stacked on top of your other income. For 2025/26 in England, Wales, and Northern Ireland, the bands are:

Tax band	Taxable income	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%

Scotland sets its own Income Tax bands, so Scottish taxpayers should check the current rates on GOV.UK.

How much tax will I pay on rental income? As a rough guide, multiply your rental profit by your top tax rate. A basic-rate landlord pays about 20% of their rental profit; a higher-rate landlord pays about 40%. Where the profit straddles a threshold, part is taxed at 20% and the rest at 40% — the employed-landlord example below shows how that split works.

Mortgage Interest and the Section 24 Tax Reducer

This is the area that changed most for landlords and the one that catches people out. Since April 2020, residential landlords cannot deduct mortgage or other finance interest as an expense. Instead, you receive a tax reduction worth 20% of your finance costs — the Section 24 restriction.

How the Tax Reducer Works

Work out your rental profit without deducting any mortgage interest.
Pay Income Tax on that full profit at your marginal rate.
Reduce your tax bill by 20% of your finance costs.

The 20% reducer is applied to the lowest of three figures: your finance costs for the year, your property profits, or your income above the Personal Allowance. Finance costs include mortgage interest, interest on loans to buy furnishings, and fees for arranging or repaying a mortgage. Capital repayments don't count.

Why It Hurts Higher-Rate Landlords

For a basic-rate landlord, a 20% reducer replaces what used to be a 20% deduction, so there's no real change. For a higher-rate landlord, profit that was once relieved at 40% now only attracts a 20% credit — so the same interest bill saves half as much tax.

Taxpayer	Effect of Section 24
Basic rate (20%)	Broadly no change — 20% deduction replaced by 20% reducer
Higher rate (40%)	Noticeable — relief drops from 40% to 20% of finance costs
Additional rate (45%)	Most affected — the gap between the marginal rate and 20% is largest

Worked comparison: Consider a landlord with £10,000 of rental profit (before interest) and £5,000 of mortgage interest.

Basic-rate landlord: Tax on £10,000 at 20% = £2,000. Reducer of 20% × £5,000 = £1,000. Net tax = £1,000 — the same as the old system, where £5,000 profit taxed at 20% would also have been £1,000.
Higher-rate landlord: Tax on £10,000 at 40% = £4,000. Reducer of 20% × £5,000 = £1,000. Net tax = £3,000 — against £2,000 under the old system (£5,000 profit at 40%). Section 24 costs this landlord £1,000 more.

Our mortgage interest relief guide goes deeper on the calculation and the situations where the reducer is capped.

Allowable Expenses in Brief

To work out taxable profit, you deduct the day-to-day costs of running the property. To be allowable, a cost needs to be wholly and exclusively for the letting. Common examples include:

Buildings and contents insurance.
Letting agent and management fees.
Repairs and maintenance (not improvements).
Council tax, ground rent, and utilities for periods you pay them.
Accountancy fees for the rental accounts.

Mortgage interest is not in this list — it's handled through the Section 24 reducer instead. For the full breakdown of what you can and can't claim, see allowable landlord expenses.

Worked Examples: How Much Tax on Rental Income (2025/26)

These examples use 2025/26 figures and generic names. They're illustrative — your own position depends on your total income and costs.

Example A: Basic-Rate Landlord

Priya earns £20,000 from a part-time job. Her rental figures for the year are:

Rent received: £9,600
Allowable expenses (excluding interest): £2,600
Mortgage interest: £3,000

Her rental profit (interest not deducted) is £9,600 − £2,600 = £7,000. Added to her £20,000 job, her total income of £27,000 sits entirely in the basic-rate band.

Tax on £7,000 at 20% = £1,400
Section 24 reducer: 20% × £3,000 = £600
Net tax on rental income = £800

Under the pre-2020 rules her profit would have been £4,000 (£7,000 − £3,000) taxed at 20% = £800. As a basic-rate landlord, Section 24 leaves her no worse off.

Example B: Higher-Rate Landlord (Section 24 Impact)

Tom earns £60,000 from employment, so he's already a higher-rate taxpayer before any rent. His rental figures are:

Rent received: £15,000
Allowable expenses (excluding interest): £3,000
Mortgage interest: £6,000

His rental profit (interest not deducted) is £15,000 − £3,000 = £12,000. Because his employment income already exceeds £50,270, all of this profit falls in the higher-rate band.

Tax on £12,000 at 40% = £4,800
Section 24 reducer: 20% × £6,000 = £1,200
Net tax on rental income = £3,600

Under the old rules, his taxable profit would have been £6,000 (£12,000 − £6,000) taxed at 40% = £2,400. Section 24 costs Tom an extra £1,200 a year — the 20-point gap between his 40% rate and the 20% reducer, applied to his £6,000 interest.

Example C: Employed Plus Landlord

Emma earns £45,000 from her job and has a mortgage-free rental flat producing £10,000 profit (rent minus expenses). Her total income is £55,000, which straddles the higher-rate threshold of £50,270.

Her £45,000 salary uses part of the basic-rate band, leaving £50,270 − £45,000 = £5,270 of basic-rate room.
The first £5,270 of rental profit is taxed at 20% = £1,054.
The remaining £4,730 falls into the higher-rate band, taxed at 40% = £1,892.
Total tax on rental profit = £2,946

This is why adding rental income to a salary can push part of your profit into a higher band, even if your day job wouldn't get there on its own.

When You Need to Tell HMRC

What you need to do depends on how much you receive. These thresholds apply to 2025/26:

Situation	Action required
Gross rental income £1,000 or less	No action needed
Gross rental income over £1,000, up to £2,500	Contact HMRC — you may not need a full return
Profit over £2,500 (after allowable expenses)	Register for and file a Self Assessment return
Gross rental income over £10,000	Register for and file a Self Assessment return

If your profit is under £2,500 and your gross income is under £10,000, contacting HMRC lets them decide whether you need a return or whether the tax can be collected another way, such as through your tax code. Above those thresholds, Self Assessment is the route. New landlords can find the steps in filing your first return as a landlord.

Key Deadlines

For a tax year that runs 6 April to 5 April, the Self Assessment dates are:

What	When
Register for Self Assessment	5 October after the tax year
File a paper return	31 October
File online	31 January
Pay the tax owed	31 January

For the 2025/26 tax year (6 April 2025 to 5 April 2026):

Register by 5 October 2026 if you haven't filed before.
File online and pay any tax due by 31 January 2027.

If your bill is large enough, HMRC may also ask for payments on account towards the following year.

Making Tax Digital for Income Tax (Forward-Looking)

Making Tax Digital (MTD) for Income Tax changes how landlords keep records and report to HMRC. Instead of one annual return, affected landlords keep digital records and send quarterly updates through compatible software. It's being phased in by qualifying income (gross income from self-employment and property):

Qualifying income	Applies from
Over £50,000	6 April 2026
Over £30,000	6 April 2027
Over £20,000	6 April 2028

The threshold is based on the figures in your previous Self Assessment return. If MTD is likely to apply to you, it's worth checking early — the Making Tax Digital for landlords guide explains what to prepare.

New Property Income Tax Rates from April 2027 (Forward-Looking)

From April 2027, rental profit gets its own set of Income Tax rates, separate from the main bands. The property rates are set 2 percentage points above the equivalent main rates:

Band	Main rate (2025/26)	Property rate (from April 2027)
Basic rate	20%	22%
Higher rate	40%	42%
Additional rate	45%	47%

Finance cost relief will move to the new property basic rate of 22%. This is a future change and doesn't affect your 2025/26 or 2026/27 calculations — the April 2027 landlord tax changes guide covers it in full.

Other Situations to Be Aware Of

A few common circumstances have their own rules:

Joint ownership: Married couples and civil partners are taxed 50/50 by default, even with unequal shares, unless they file Form 17 to reflect actual ownership. Other joint owners are taxed on their share. See joint property ownership.
Losses: If your property business makes a loss, you can carry it forward to set against future rental profits. It's worth reporting a loss even in a year you owe no tax.
Non-resident landlords: If you live abroad and let UK property, the Non-Resident Landlord Scheme may apply, and tax can be withheld from your rent. See the non-resident landlord scheme.
Selling a rental: Income Tax covers the rent; when you sell, Capital Gains Tax may apply to the profit on the sale. See selling a rental property and CGT.

Even when you owe no tax, keeping clear records is sensible, because HMRC can ask questions going back several years. The landlord tax records checklist lists what to keep.

Frequently Asked Questions

Do I pay tax on rental income under £1,000?

No. The £1,000 property allowance (2025/26) means gross rental income at or below this level is tax-free, and you don't need to tell HMRC about it. Above £1,000, the profit becomes taxable, though you may still owe nothing if your total income stays under the £12,570 Personal Allowance.

How much tax will I pay on rental income?

Your rental profit is taxed at your marginal rate once added to your other income — around 20% for a basic-rate taxpayer and 40% for a higher-rate taxpayer, with 45% above £125,140 (2025/26). If your profit straddles a threshold, part is taxed at the lower rate and the rest at the higher one.

Is mortgage interest tax deductible for landlords?

Not as an expense. Since April 2020, residential landlords receive a tax reduction worth 20% of their finance costs instead of deducting the interest. This is the Section 24 restriction, and it means higher-rate landlords get less relief than they did before.

How is rental income taxed if I'm employed?

Your rental profit is added on top of your employment income and taxed at your marginal rate. If your salary already uses your basic-rate band, some or all of the rental profit can be taxed at 40%, even where your job alone wouldn't reach the higher-rate threshold.

Do I need to register for Self Assessment as a landlord?

Generally yes, once your rental profit is over £2,500 after allowable expenses, or your gross rental income is over £10,000. Between £1,000 and £2,500, contact HMRC first — you may not need a full return. Register by 5 October following the tax year you first received rental income.

What counts as rental income for tax?

Rent from tenants, charges for services such as heating or cleaning, charges for furniture in a furnished let, and insurance payouts for lost rent all count. Deposits held purely as security don't count unless you keep part of one.

This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.

Official Sources

Renting out a property: Paying tax — GOV.UK
Income Tax rates and Personal Allowances — GOV.UK
Tax-free allowances on property and trading income — GOV.UK
Tax relief for residential landlords: how it's worked out — GOV.UK
Find out if and when you need to use Making Tax Digital for Income Tax — GOV.UK
Changes to tax rates for property, savings and dividend income — GOV.UK
Rent a Room scheme — GOV.UK