How is rental income taxed in the UK?
The short answer: rental profit is added to your other income and taxed at your usual rate: 20%, 40% or 45% in 2026/27, rising to 24%, 44% and 49% from April 2027. You can deduct running costs, but if you own the property personally, mortgage interest is not deductible. Instead you get a tax credit of 20% of it. The first £1,000 of rental income is tax-free.
A worked example
A landlord lets a flat for £1,200 a month, with £2,400 of costs and £6,000 of mortgage interest a year:
| Basic-rate | Higher-rate | |
|---|---|---|
| Rent | £14,400 | £14,400 |
| Allowable costs | −£2,400 | −£2,400 |
| Taxable profit | £12,000 | £12,000 |
| Tax on profit, 2026/27 | £2,400 | £4,800 |
| Less 20% credit on £6,000 interest | −£1,200 | −£1,200 |
| Tax to pay, 2026/27 | £1,200 | £3,600 |
| Tax from April 2027 | £1,680 | £4,080 |
Cash left after costs and interest is £6,000. The higher-rate landlord pays £3,600 of that in tax, about 60% of their actual cash profit, because they are taxed on interest they paid out. The 20% credit for interest does not change from April 2027, so the gap widens.
Rental profit also counts towards your income for things like the £100,000 personal allowance taper and the High Income Child Benefit Charge. It could push part of your salary into a higher band.
Allowable expenses
- Letting agent and management fees
- Repairs and maintenance (not improvements)
- Landlord insurance, ground rent and service charges
- Council tax, utilities and broadband if you pay them
- Gas safety certificates, EPCs and electrical checks
- Accountancy fees, and the cost of replacing furniture and appliances like for like
Improvements, such as an extension or a new kitchen better than the old one, are not deductible against rent, but can reduce Capital Gains Tax when you sell. You can use the £1,000 property allowance instead of actual expenses if that is better.
The mortgage interest rule
Since April 2020, individual landlords cannot deduct mortgage interest or other finance costs. The 20% tax credit means basic-rate landlords pay about the same as before, but higher and additional-rate landlords pay more. Unused credits can be carried forward. Limited companies can still deduct interest in full, which is one reason some landlords buy through a company, although company ownership brings other costs.
Joint owners
Married couples and civil partners who own property jointly are normally taxed 50:50. If you own unequal shares, you can file Form 17 with HMRC to be taxed on your actual shares, which can help if one partner pays a lower rate.
Reporting and paying
- Rental income over £1,000: register for Self Assessment by 5 October after the tax year.
- Pay by 31 January, with payments on account if your bill is over £1,000.
- Making Tax Digital applies from April 2026 if your combined self-employed and property income is over £50,000, falling to £30,000 from April 2027.
See also what is a good rental yield, Capital Gains Tax on a second home and the rental yield calculator.
Losses
If your allowable costs are more than your rent, you make a loss. Rental losses can only be carried forward against future profits from the same property business; they can't be set against your salary. Unused mortgage interest credits also carry forward.
Letting to family
If you let a property to a relative below the market rent, HMRC may limit your expenses to the rent you actually charge, so you can't create a loss to set against other rental profits. Letting at a fair market rent with a proper tenancy keeps the normal rules.
Living abroad
If you live outside the UK and let a UK property, you still pay UK tax on the profit. Letting agents, or tenants paying more than £100 a week, must deduct basic-rate tax from the rent unless HMRC approves you to receive it gross under the Non-Resident Landlord Scheme.
Keeping records
Keep a record of all rent received, invoices and receipts for costs, mortgage statements showing the interest, and any letting agent statements, for at least five years after the 31 January filing deadline. A separate bank account for the property makes this much easier, and Making Tax Digital will require digital records once your income is over the threshold.
Related reading: the Autumn Budget 2026 explained.
This covers individual landlords letting UK residential property in England, Wales and Northern Ireland. Scotland sets its own Income Tax rates. Furnished holiday lettings rules ended in April 2025.
Sources
Common questions
How much tax do I pay on rental income?
You pay Income Tax on your rental profit at your normal rate: 20%, 40% or 45% in 2026/27. From April 2027 property income has its own rates of 24%, 44% and 49%.
Can I deduct mortgage interest from rental income?
Not as an expense if you own the property personally. Instead you get a tax credit worth 20% of the interest. Higher-rate landlords therefore pay tax on part of their interest.
Do I need to declare rental income under £1,000?
No. The £1,000 property allowance means you do not need to tell HMRC about gross rental income of £1,000 or less a year.
Is renting a room in my home taxed?
Under Rent a Room relief, you can earn up to £7,500 a year from a lodger in your own home tax-free. Above that, you can choose to pay tax on the excess or work out profit normally.
Do I need to file a Self Assessment tax return?
Yes, if your rental income is over £1,000 before expenses, or over £10,000 if Rent a Room relief applies. From April 2026, landlords with qualifying income above £50,000 also need Making Tax Digital.