Tax on Rental Income UK 2025-26: What Landlords Pay
UK landlords pay income tax on net rental profits. Here is a complete breakdown of what you owe, what you can deduct, and how Section 24 changed the rules for mortgaged properties.
How Rental Income Is Taxed
Rental income is treated as investment income and added to your other income (salary, pension, etc.) for the purposes of calculating your income tax rate. You pay tax on your net rental profit, total rental income minus allowable expenses, at your marginal rate.
| Total Annual Income | Tax Rate on Rental Profit |
|---|---|
| Up to £12,570 | 0% (Personal Allowance) |
| £12,571-£50,270 | 20% |
| £50,271-£125,140 | 40% |
| Above £125,140 | 45% |
Note: Rental income does not attract National Insurance contributions.
The £1,000 Property Income Allowance
If your gross rental income is £1,000 or less per tax year, you do not need to declare it or pay tax on it, this is the property income allowance. Income above £1,000 must be declared via Self Assessment.
If your expenses are low (below £1,000), you can choose to use the allowance instead of claiming actual expenses, whichever is more beneficial.
Allowable Deductions
You can deduct the following expenses from your rental income before calculating tax:
- Letting agent fees, management fees, tenant-finding fees
- Repairs and maintenance, fixing a broken boiler, repainting (but not improvements)
- Buildings and contents insurance
- Ground rent and service charges (if applicable)
- Council tax and utility bills, only if you pay them, not the tenant
- Accountancy and legal fees for preparing accounts or tenancy agreements
- Advertising costs for finding tenants
- Cleaning costs between tenancies
You cannot deduct capital improvements (adding an extension, a new kitchen), the cost of acquiring the property, or private expenses.
Section 24: Mortgage Interest Relief
Since April 2020, landlords can no longer deduct mortgage interest as an expense before calculating taxable profit. Instead, you receive a 20% tax credit on mortgage interest paid. This is known as Section 24 (from the Finance Act 2015).
The impact is most severe for higher rate taxpayers. Here is an example:
Rental income: £12,000. Mortgage interest: £8,000. Other allowable expenses: £2,000.
- Under old rules: taxable profit = £12,000 − £8,000 − £2,000 = £2,000. Higher rate (40%) tax = £800.
- Under Section 24: taxable profit = £12,000 − £2,000 = £10,000. Higher rate tax = £4,000. Less 20% credit = £8,000 − (£8,000 × 20%) = £8,000 − £1,600 = £2,400 net tax.
The Section 24 change has significantly increased the tax burden for mortgaged buy-to-let landlords, particularly those in the higher rate band. Some landlords have transferred properties into limited companies, where mortgage interest remains fully deductible as a business expense (though other costs apply).
Furnished Holiday Lettings
Properties let as furnished holiday lettings (FHL), meeting HMRC's qualifying conditions, are treated differently. FHL income may qualify for business asset disposal relief on sale, pension contribution allowances linked to FHL profits, and capital allowances on furniture and equipment.
To qualify as FHL, the property must be available for letting at least 210 days per year, actually let for at least 105 days, and not in continuous long-term occupation for more than 155 days.
Rent a Room Relief
If you let a furnished room in your own home (not a separate property), the Rent a Room scheme allows you to earn up to £7,500 per year tax-free. This applies to owner-occupiers and tenants who sublet with their landlord's permission.
Registering With HMRC
You must register for Self Assessment if your rental income exceeds £1,000. Register by 5 October in the tax year after you first received the income. For example, if you first received rental income in the 2024-25 tax year (which ends 5 April 2025), you must register by 5 October 2025.
Self Assessment returns for rental income must be submitted by 31 January following the tax year end (online) or 31 October (paper). Rental profits are declared on the "UK Property" pages of the return.
Frequently Asked Questions
How is rental income taxed in the UK?
Rental income is added to your other income and taxed at your marginal rate, 20%, 40%, or 45%. You are taxed on net rental profit after allowable expenses. Report it via Self Assessment if income exceeds £1,000.
What expenses can I deduct from rental income?
Letting agent fees, repairs and maintenance, insurance, council tax (if you pay it), accountancy fees, and a 20% credit on mortgage interest under Section 24.
What is Section 24 mortgage interest relief?
Since April 2020, landlords cannot deduct mortgage interest as an expense. Instead, you receive a 20% tax credit on interest paid, significantly increasing the tax burden for higher rate taxpayers with mortgaged properties.
Do I need to register with HMRC as a landlord?
Yes, if your rental income exceeds £1,000 per year. Register for Self Assessment by 5 October in the tax year after you first received rental income.