tax

Rental Income Tax UK: A Complete Guide for Landlords 2026

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If you receive rental income in the UK — whether from a buy-to-let property, letting a spare room, or an inherited property — it's taxable. The rules have changed significantly over the past decade, particularly for mortgage interest relief, which is now replaced by a basic-rate tax credit. Yet many landlords either overpay tax because they don't know what expenses to deduct, or underpay because they don't report all their income. This guide covers everything you need to know about rental income tax in the UK for 2026.

Is All Rental Income Taxable?

Yes — rental income from UK properties is taxable and must be declared to HMRC. However, there are two important reliefs that may reduce or eliminate the tax. The property income allowance of £1,000/year means that if your gross rental income is under £1,000, you pay no tax and don't need to report it. If your rental income is between £1,000 and £2,500, you may be able to contact HMRC to arrange collection via PAYE rather than self-assessment. Above £2,500, you must complete a self-assessment return. The rent-a-room scheme allows you to earn up to £7,500/year tax-free by renting a furnished room in your own home.
  • •Property income allowance: first £1,000/year tax-free
  • •£1,000–£2,500: may be collected via PAYE
  • •Over £2,500: self-assessment required
  • •Rent-a-room: £7,500/year tax-free for furnished rooms in your own home
  • •All rental income globally (not just UK properties) must be declared to HMRC if you're UK resident

What Expenses Can Landlords Deduct?

Landlords can deduct 'allowable expenses' from rental income before calculating taxable profit. These must be wholly and exclusively for the purpose of renting the property. Allowable expenses include letting agent fees and management charges, landlord insurance premiums, maintenance and repairs (not improvements), council tax and utility bills (if paid by landlord), accountancy fees, advertising costs, and ground rent and service charges for leasehold properties. You cannot deduct capital expenses (improvements that add value), personal time spent managing the property, or mortgage capital repayments. The shift from full mortgage interest relief to a 20% basic-rate tax credit (Section 24) means higher-rate taxpayers now pay more tax than before on financed buy-to-let.
  • •Letting agent and management fees
  • •Landlord insurance
  • •Maintenance and repairs (not improvements)
  • •Council tax, utilities (if you pay them)
  • •Accountancy fees, advertising costs
  • •NOT deductible: capital improvements, personal time, mortgage capital

Mortgage Interest Relief After Section 24

Before 2020, landlords could deduct mortgage interest from rental income as an expense. This was phased out between 2017 and 2020. Now, under Section 24 of the Finance Act 2015, mortgage interest is no longer an allowable expense — instead, you get a 20% tax credit equal to 20% of your mortgage interest payments. This change disproportionately affects higher-rate taxpayers. A landlord paying 40% income tax previously got tax relief at 40% on mortgage interest; now they only get 20%, effectively doubling their tax on the interest. For basic-rate taxpayers, the difference is minimal in final liability, but cash flow during the tax year changes. Some landlords have responded by incorporating their property portfolio into a limited company, which still treats mortgage interest as a business expense.
  • •Section 24: mortgage interest no longer deductible as expense
  • •Replaced by: 20% basic-rate tax credit on mortgage interest
  • •Higher-rate taxpayers most affected (40% → 20% relief)
  • •Basic-rate taxpayers: less impacted in final tax liability
  • •Limited company ownership: mortgage interest still fully deductible

How to Calculate Your Rental Income Tax

Calculate rental profit by taking your total rental income and subtracting all allowable expenses (excluding mortgage capital and non-allowable items). Add this profit to your other income for the year. Pay income tax on the combined amount at your marginal rate (20%, 40%, or 45%). Then calculate 20% of your mortgage interest payments and deduct this as a tax credit from your total tax bill. For example: £12,000 annual rent, £3,000 allowable expenses, £4,000 mortgage interest. Rental profit = £9,000. If you're a higher-rate taxpayer: tax on £9,000 at 40% = £3,600, minus 20% of £4,000 = £800 credit. Net rental tax = £2,800. If you had previously been allowed to deduct mortgage interest fully, the bill would have been (£9,000 − £4,000) × 40% = £2,000. Section 24 cost this landlord an extra £800.
  • •Rental profit = gross income minus allowable expenses
  • •Tax paid on rental profit at marginal income tax rate
  • •Mortgage interest: 20% basic-rate credit deducted from tax bill
  • •Higher-rate landlords see significant tax increase vs. pre-2020
  • •Use property income supplementary pages of self-assessment SA105

Frequently Asked Questions

Do I need an accountant as a landlord?+

Not legally — but given the complexity of allowable expenses, Section 24, and capital gains tax on eventual sale, most landlords find an accountant pays for itself in tax savings and peace of mind.

What about capital gains when I sell?+

When you sell a rental property, you pay Capital Gains Tax on the profit above your annual exempt amount (£3,000 in 2025/26). The rate is 24% for higher-rate taxpayers on residential property.

What is the £1,000 property income allowance?+

If your total rental income is under £1,000/year, you don't need to report it. If over, you can still claim the allowance as an alternative to deducting actual expenses — beneficial if your expenses are low.

I inherited a property — do I need to declare rental income?+

Yes — rental income from inherited properties is taxable in the same way as any buy-to-let property.

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