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Last updated: 10 November 2026

Taxes

Tax on Rental Income: UK Landlord Guide for 2026/27

Renting out a property in the UK means paying tax on the profit, not the rent. This guide explains the £1,000 property allowance, the expenses you can deduct, the 20, 40 and 45 percent rates, and how to report it to HMRC.

MKD Editorial Team6 min readFigures checked 10 Nov 2026
A landlord handing house keys to a smiling tenant outside a red-brick terraced rental house in warm evening light.
The tax bill starts when the keys change hands.

Key takeaways

  • You pay tax on rental profit, rent minus allowable expenses, not the full rent.
  • The first £1,000 of gross property income each year is tax-free.
  • Rental profit is added to your other income and taxed at 20%, 40% or 45% in 2026/27.
  • Mortgage interest is no longer an expense: a 20% tax credit instead.
  • Report rental income on a Self Assessment return, due online by 31 January.

What counts as rental income

Rental income is money received for letting out property: a house, a flat, a room in a property you do not live in, or commercial premises. It includes the rent and payments for services you provide, such as cleaning. A tenant deposit is not income: you hold it and return it.

Tax is charged on the profit: rent minus the expenses HMRC allows.

The £1,000 property allowance

The property allowance exempts up to £1,000 a year of property income from tax. If your gross property income is £1,000 or less in a tax year, you need not tell HMRC or pay tax on it. Keep a record anyway.

Above £1,000, deduct your actual expenses or the £1,000 allowance, not both. For a small let the allowance often wins; real expenses usually beat £1,000 for a mortgaged buy-to-let.

Between £1,000 and £2,500, contact HMRC; above £2,500, register for Self Assessment. Joint owners each get up to £1,000. The allowance cannot be used on Rent a Room income or with the mortgage interest tax reducer.

Allowable expenses you can deduct

An expense is allowable if it is wholly and exclusively for the rental business: letting agent fees, landlord insurance, maintenance and repairs, ground rent and service charges, council tax and utilities you pay rather than the tenant, legal fees, like-for-like replacement of domestic items, and accountancy fees.

Capital improvements are not deductible: an extension or new kitchen improves the property rather than repairing it. Those costs may reduce capital gains tax when you sell.

How much tax you will pay: the rates

Your rental profit is added to your other income and taxed at your marginal rate. In England, Wales and Northern Ireland in 2026/27: up to £12,570 at 0%, £12,571 to £50,270 at 20%, £50,271 to £125,140 at 40%, over £125,140 at 45%.

Your salary decides the rate: the profit sits on top of it. If your salary already uses your allowance and basic rate band, rental profit is taxed at 40% from the first pound. Above £100,000, the personal allowance falls by £1 for every £2, vanishing at £125,140. Scotland sets its own rates; ordinary rental income carries no National Insurance.

Worked example: a landlord at the basic rate

Worked example, labelled illustrative. A landlord earns £38,000 and lets a flat for £1,000 a month (£12,000 a year). Her expenses are £1,200 in agent fees, £300 of insurance and £900 of repairs (£2,400 total), plus £3,600 of mortgage interest.

Her profit is £9,600. With her salary, total income is £47,600, below the £50,270 threshold, so the profit is taxed at 20%: £1,920. Less the finance cost credit of £720 (20% of £3,600), the tax due on the rent is £1,200.

With the allowance instead, profit would be £11,000, taxed at £1,480 after the £720 credit. Real expenses save £280. Before you buy, check the numbers with our rental yield calculator.

A woman working out rental figures at a wooden desk with a calculator, blank papers, a laptop and a mug of tea.
Most of the tax work is simple arithmetic, done once a year.

Rent a Room: the £7,500 exception

Under the Rent a Room Scheme you can earn up to £7,500 a year tax-free from a furnished room in your own home, automatically. Shared income halves it to £3,750 each. Above the threshold, opt in and pay tax on the excess, or declare the full income and deduct expenses.

How to report rental income

Rental income is reported through Self Assessment, on the UK property pages (SA105). Register by 5 October following the tax year if you have never filed before. The online return and any tax owed are due by 31 January after the tax year ends: 31 January 2027 for 2025/26. Our Self Assessment tax return guide explains who must file, and our tax year dates guide lists the deadlines.

Payments on account may apply: half on 31 January, half on 31 July. From April 2026, landlords with qualifying income over £50,000 must keep digital records and send quarterly updates under Making Tax Digital.

What changes from April 2027

From 6 April 2027, property income gets its own rates under section 7 of Finance Act 2026: 22% basic, 42% higher and 47% additional, with the finance cost credit rising to 22%. These apply in England, Wales and Northern Ireland.

Budget 2026 announced a further rise to 24%, 44% and 49% from the same date, but that is not yet law: it needs Finance Bill 2026-27 to pass.

Keeping records HMRC will accept

Keep every record behind the figures on your return: tenancy agreements, rent received, invoices and receipts, and bank statements. HMRC can penalise records that are not accurate, complete and readable.

Keep business records for at least five years after the 31 January filing deadline, so records for 2025/26 must be kept until at least 31 January 2032.

Mistakes landlords make

The costliest mistake is not declaring the income: HMRC receives data from letting agents and banks, and undeclared rent can mean back tax, interest and penalties. Next, deducting mortgage interest as an expense, not allowed since April 2020, or claiming the £1,000 allowance and expenses together. A late return brings an automatic £100 penalty, even with no tax owed.

Sources & further reading

This article is general information only, not financial advice.

Related guides

Frequently asked questions

How much tax do I pay on rental income in the UK?

Your rental profit is added to your other income and taxed at your marginal rate: 20 percent basic rate, 40 percent higher rate or 45 percent additional rate in 2026/27. The standard personal allowance is 12,570 pounds, so profit below that is tax-free if you have no other income. If your salary already uses up your allowance and basic rate band, your rental profit is taxed at 40 percent from the first pound.

How much rental income is tax-free in the UK?

The first 1,000 pounds of gross property income each tax year is tax-free under the property allowance, and if that is all you earn you do not need to tell HMRC. If you let a furnished room in your own home, the Rent a Room Scheme allows up to 7,500 pounds a year tax-free instead, or 3,750 pounds each if the income is shared.

Can I deduct mortgage interest from rental income?

No. Since April 2020 individual landlords cannot deduct mortgage interest as an expense. Instead you get a tax credit equal to 20 percent of the interest you paid, which reduces your tax bill directly. The credit is not the same as a deduction: a higher rate landlord still pays 40 percent tax on the profit before the credit is applied.

Do I need to file a tax return for rental income?

It depends on how much you earn. If your gross property income is 1,000 pounds or less, you do not need to tell HMRC. Between 1,000 and 2,500 pounds, contact HMRC. Above 2,500 pounds, register for Self Assessment and file a return, online by 31 January after the tax year ends. First-time filers must register by 5 October following the tax year.

What is the property allowance?

The property allowance is a tax exemption of up to 1,000 pounds a year on income from property. If your gross rental income is above 1,000 pounds, you can choose to deduct the allowance instead of your actual expenses, whichever gives you the lower tax bill. You cannot use both. Joint owners each get up to 1,000 pounds against their share of the rent.

Where our numbers come from