Becoming a landlord can be a smart way to build long-term wealth, but there is one thing that catches many property owners off guard: rental income tax in the UK. HMRC demands its share of the profit you earned. That’s why it is necessary to understand tax on rental property, whether you rent a single room, manage multiple buy-to-let properties or manage a growing portfolio. This knowledge helps you to avoid surprises that come in tax season. This guide will explain what rental income tax is, how much tax landlords pay on rent, what counts as taxable rental income, and how buy-to-let tax in the UK affects your profit.
Do Landlords Pay Tax on Rent in the UK?
Of course, landlords must pay tax on rental profits. But only once it exceeds certain allowances. These are key points:
- All earned rent counts as income, including tenant payments for utilities or services if you handle them.
- The first £1000 of rental income each year is covered by the property allowance, and it’s tax-free.
- If your rental income is between £1000 and £2,500, then you need to contact HMRC.
- If your rental income is more than £2,500 after allowable expenses, you need to register for Self Assessment.
Even homeowners who rent out a former residence must pay tax on rental property income if they exceed the allowance.
How Much Tax Do You Pay on Rental Income in the UK?
For the current 2025/26 tax year, rental profits are taxed at the standard Income Tax rate after being added to your total income. How much tax do you need to pay on rental income in the UK? It totally depends on your total income, which is earned by rental profit and other sources of income, such as a good salary, which can push you into a higher band quickly. These ranges are given below:
| Tax Band | Total Taxable Income | Tax Rate on Rental Profit |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
For example, if a basic-rate taxpayer earns £10,000 rental profit, then he needs to pay around £2,000 tax minus any allowances. In another example, if a person earns £40,000 from his job and makes £15,000 profit from renting, then his total income is £55,000. After the Personal Allowance, he needs to pay 20% on most of it and 40% on the part over £50,270.
Calculating Taxable Rental Income
- Start with gross rent
- Minus allowable expenses
- Apply the £1,000 Property Allowance if it benefits you more
- Add the profit to your other income sources.
- Subtract Personal Allowance.
- Apply tax rates.
- For mortgage interest, no full deduction anymore. Instead, a 20% tax credit (increasing to 22% in 2027).
Case 1: Rental Income Tax in Practice
Suppose:
- Annual rental income: £18,000
- Allowable expenses: £6,000
- Taxable rental income: £12,000
If you’re a basic-rate taxpayer, you would pay:
£12,000*20% = £2,400 rental income tax
If your total income lies in the higher-rate band, the tax on that same rental profit can go up to £4,800
Case 2:
Let’s say, a person earns £18,000 rent, has £6,000 allowable expenses excluding interest and £5,000 mortgage interest. Additionally, he earns a £40,000 salary.
- Profit before interest: £12,000.
- Total income: £52,000 (lies Higher-rate taxpayer).
- Tax on Profit: Higher rate, but with a 20% credit on interest, reducing your bill.
What Counts as Taxable Rental Income?
Your taxable rental income is calculated by minusing allowable expenses from your total rental income.
Rental income includes:
- Monthly rent payments
- Payments for utilities or council tax
- Service charges
- Fees for granting a lease
Allowable expenses you can deduct include:
- Property repairs and maintenance
- Letting agent and management fees
- Landlord insurance
- Legal and accounting fees
- Council tax or utility bills you pay
- Replacement of domestic items like carpets or appliances
Mortgage Interest Relief
Before April 2020, landlords could deduct 100% of their mortgage interest from rental income before calculating tax. But HMRC introduced Section 24 since then, and mortgage interest is no longer fully deductible. Instead, landlords receive a 20% tax credit, regardless of their tax band. This rule applies to individual landlords only, not to limited companies.
Example: Sarah earns £25,000 in rental income. Deducting allowable expenses, which are £4,000, the net rental profit is £21,000. Let’s calculate her payable tax in steps:
| Description | Amount (£) |
|---|---|
| Step 1 : Rental Income & Expenses | |
| Rental income from furnished property | 25,000 |
| Expenses: | |
| Interest on mortgage | 5,000 |
| Agent fees | 1,500 |
| Repairs & maintenance | 1,000 |
| Utility bills | 500 |
| Replacement of domestic items | 1,000 |
| Total deductible expenses | 4,000 |
| Net rental profit (before interest) | 21,000 |
| Step 2 : Calculate Taxable Income | |
| Net rental profit | 21,000 |
| Personal Allowance | 12,570 |
| Taxable Income | 8,430 |
| Step 3 : Calculate Income Tax | |
| Taxable income | 8.430 |
| Income tax at 20% | 1,686 |
| Step 4 : Apply Mortgage Interest Tax Credit | |
| Mortgage interest paid | 5,000 |
| Tax credit at 20% | 1,000 |
| Step 5 : Final Payable Tax | |
| Income tax before credit | 1,686 |
| Tax reduction for mortgage interest | 1,000 |
| Final rental income tax payable | 686 |
Big Change Coming: Higher Rates for Property Income
In the Autumn 2025 Budget, 2% increment has been introduced specifically for property income starting from April 2027:
- Basis: 22%
- Higher: 42%
- Additional: 47%
This is intended to more closely link the buy-to-let tax in the UK with earned income taxes. According to the Office for Budget Responsibility, this might lower the availability of rentals and eventually raise rates.
Buy-to-Let Tax in the UK: What Landlords Should Know
If a person owns a buy-to-let property, there are additional taxes to consider with rental income tax as well:
- Capital Gains Tax (CGT)
If a person sells a rental property, tax will apply at:
- 18% for basic-rate taxpayer
- 24% for higher-rate taxpayer
- Making Tax Digital
From April 2026, landlords whose profit is over £50,000 annually from property will need to submit quarterly digital updates to HMRC.
How to Report and Pay Your Rental Income Tax
Most landlords are required to file a Self Assessment tax return every year by:
- Registering by 5 October after the tax year they start renting
- Filing online by 31 January (paper by 31 October)
- Paying any tax owed by 31 January
If gross rents are under £2,500, then they might not need to file it.
Final Thoughts: Stay Informed and Maximise Your Returns
A complete understanding of rental income tax in the UK is essential for every landlord. One needs to keep good records, claim everything one’s entitled to and consider speaking to an accountant who specialises in property, especially if they are a higher-rate taxpayer or have multiple properties.
Need Help With Rental Income Tax?
With changing HMRC rules and reporting requirements, managing rental income tax can be overwhelming. That’s why you need to speak to a Specialist at Reflex Accounting today to:
- Ensure Compliance
- Reduce your tax bill legally
- Avoid costly mistakes
Get Expert support and peace of mind. So, you can focus on growing your property portfolio.
Faqs:
Is rental income taxed differently from salary?
No, rental income is taxed at the same income tax rate as salary, but it is reported through Self Assessment and allows deductions for allowable expenses.
How much rental income is tax-free in the UK?
You can earn up to £12,570 tax-free under the Personal Allowance, provided your total income stays within this limit. Some landlords may also use a £1,000 property income allowance.
What is the £1,000 property income allowance?
It allows landlords to get benefits up to £1,000 per year from rental income tax-free, but no expenses can be claimed if this allowance is used.
What expenses can landlords deduct from rental income?
Allowable expenses include repairs, letting agent’s fees, insurance, professional fees, utilities paid by the landlords, and replacement items. Mortgage interest qualifies for a 20% tax credit, not a full deduction.
What is Rental Income Tax?
HMRC treats your rental activities as a business, so your taxable rental income is the rent after allowable expenses. This profit is added to your other income and taxed at your personal Income Tax rate. According to the HMRC data of 2023-2024, there are around 2.86 million unincorporated landlords in the UK who report earning over £55.5 billion in property income annually.
