How Rental Income Is Taxed in the UK: A 2025-26 Guide
If you receive rental income in the UK, you need to understand how it is taxed. The rules changed significantly between 2017 and 2020 — particularly for landlords with mortgages — and many accidental landlords are still unaware of the current system. This guide covers the 2025-26 tax year.
The property allowance: first £1,000 is tax-free
Every individual receives a £1,000 property allowance. If your total gross rental income is £1,000 or less, you pay no tax and do not need to report it. You cannot, however, claim the property allowance and also deduct expenses — it is one or the other.
Allowable expenses
If your rental income exceeds £1,000, you deduct allowable expenses to arrive at your taxable rental profit. Allowable expenses include:
- Letting agent fees
- Property repairs and maintenance (not improvements)
- Buildings and contents insurance
- Utility bills you pay (if not recharged to tenants)
- Accountancy fees
- Ground rent and service charges
- Mortgage interest — but only as a tax credit, not a full deduction (see below)
Section 24: the mortgage interest restriction
Since April 2020, landlords can no longer deduct mortgage interest as a business expense. Instead, you receive a basic rate (20%) tax credit on your mortgage interest costs. This change — phased in between 2017 and 2020 — significantly increased the tax bills of higher-rate taxpayers with mortgages.
Example: rental income of £14,400/year (£1,200/month), mortgage interest of £7,200/year.
- Old system (pre-2017): taxable profit = £14,400 - £7,200 = £7,200
- Current system: taxable profit = £14,400 (less other deductible expenses), then 20% credit on £7,200 (£1,440) applied against tax bill
A Higher Rate taxpayer faces a materially higher tax bill under the current system because their income tax rate on the full rental profit is 40%, while the credit only covers 20% of the interest.
Taxable rental profit — how to calculate it
Your rental profit is: gross rental income minus allowable expenses (excluding mortgage interest) = rental profit. Your income tax on that profit is then calculated at your marginal rate, minus the 20% mortgage interest credit.
Self Assessment: do you need to register?
You must register for Self Assessment with HMRC if your rental profit (after expenses) exceeds £1,000, or if your gross rental income exceeds £10,000. Registration deadline: 5 October following the end of the tax year in which you first received rental income.
National Insurance for landlords
Most individual landlords do not pay National Insurance on rental income. NI Class 2 applies only if HMRC considers your property rental a business (i.e., you provide services beyond simply renting out a property). Most residential landlords are not treated as running a property business for NI purposes.
Frequently asked questions
Can I offset a rental loss against my employment income?
No. Rental losses can only be carried forward against future rental profits from the same property business. You cannot offset a rental loss against your salary or other income.
What if I rent out a room in my own home?
The Rent a Room scheme allows you to earn up to £7,500 per year tax-free from renting a room in your own home. This is separate from the property allowance and is far more generous for owner-occupiers letting a furnished room.