Tax on Rental Income: A Landlord's Guide (2026/27)

Tax on rental income catches out more landlords than almost any other part of property investing, usually because the rules changed quietly and nobody told them. If you let out a property in the UK, your rental profit is added to your other income and taxed at your normal income tax rate. This guide explains exactly how that works for the 2026/27 tax year (6 April 2026 to 5 April 2027), what you can and cannot deduct, and why the way mortgage interest is treated can leave you paying more tax than you expect.

Do I pay tax on rent?

In most cases, yes. If you receive rent from letting a property, HMRC treats that as taxable income. But you are not taxed on the rent you collect — you are taxed on your profit, which is the rent left over after deducting allowable running costs. There are two important exceptions that mean some people pay no tax at all:

• The £1,000 property allowance. If your total rental income for the year is £1,000 or less, it is tax-free and you usually don't even need to tell HMRC. You can also choose to deduct the £1,000 instead of your actual expenses if that gives a better result (more on this below).
• The Rent a Room scheme. If you let a furnished room in your own home, you can earn up to £7,500 a year tax-free under a separate scheme. That is different from letting a whole property and is not covered in detail here.

Everyone else needs to report their rental profit, normally through a Self Assessment tax return. You must register with HMRC by 5 October following the end of the tax year in which you first had rental profit to declare.

How rental profit is calculated

The basic sum is simple:

Rental profit = Rental income − Allowable expenses

That profit is then added on top of your other income (salary, pension, self-employment, etc.) and taxed in the usual bands. For 2026/27 in England, Wales and Northern Ireland the income tax rates are:

So rental profit isn't taxed at a single "landlord rate". It is taxed at whatever your marginal rate is once the profit is stacked on your other income. A basic-rate taxpayer pays 20% on their rental profit; a higher-rate taxpayer pays 40%. (Scotland sets its own income tax bands, so Scottish landlords should use the Scottish rates, but the Personal Allowance is the same UK-wide.) Note that you do not pay National Insurance on rental profit, because letting property is treated as investment income rather than self-employment for most landlords.

The £1,000 property allowance: your choice each year

The property allowance gives you two options, and you can pick whichever is better:

• Claim the £1,000 flat allowance instead of working out actual expenses. Your taxable profit becomes (rental income − £1,000). This suits a property with very low running costs.
• Deduct your actual allowable expenses instead, which is almost always better once you have real costs like agent fees, insurance and repairs.

You cannot use both for the same property. If your actual expenses are more than £1,000, claim the actual figures. If they are less than £1,000, claim the allowance.

Allowable vs disallowable expenses

An expense is deductible only if it is incurred "wholly and exclusively" for the purpose of renting out the property, and it must be a running cost rather than a capital cost. Here is how the common items fall:

The repair-versus-improvement line is the one that trips people up. Replacing a broken window with a similar window is a repair (allowable). Replacing single glazing throughout with double glazing for the first time may be treated as an improvement (capital, not allowable now — but it can reduce your Capital Gains Tax when you eventually sell).

Section 24: the mortgage interest rule every landlord must understand

This is the change that quietly increased many landlords' tax bills. Before 2017, individual landlords could deduct all their mortgage interest from rental income as a normal expense. Since the Section 24 rules fully took effect in April 2020, that is no longer allowed for individuals.

Instead of deducting mortgage interest, you now:

1. Calculate your rental profit without deducting any mortgage interest, and
2. Receive a basic-rate tax credit worth 20% of the interest, deducted from your final tax bill.

For a basic-rate taxpayer this often works out the same as before. But for a higher-rate taxpayer it is a real cost: you are taxed on profit that includes the interest at 40% or 45%, yet you only get relief at 20%. The result is that your interest effectively costs you more, and — importantly — the full rent (not just the profit) counts towards your total income, which can push you into a higher band, restrict your Personal Allowance over £100,000, or trigger the High Income Child Benefit Charge.

The clearest way to see the effect is to run your own figures.

You can also use our full Rental Income Tax Calculator for a detailed breakdown, or the dedicated Section 24 Calculator to see exactly how the mortgage interest credit changes your bill.

Worked example: the Section 24 effect in numbers

Meet Priya, a higher-rate taxpayer with a £60,000 salary. She lets out one flat with the following figures for 2026/27:

• Annual rent received: £18,000
• Allowable expenses (agent fees, insurance, repairs): £3,000
• Mortgage interest: £7,000

Step 1 — Work out the taxable rental profit (interest is NOT deducted):

£18,000 rent − £3,000 expenses = £15,000 taxable profit.

Step 2 — Tax the profit at her marginal rate. Because Priya already earns £60,000, all £15,000 of profit sits in the higher-rate band:

£15,000 × 40% = £6,000 tax.

Step 3 — Apply the 20% mortgage interest tax credit:

£7,000 interest × 20% = £1,400 credit.

Step 4 — Final tax on the rental income:

£6,000 − £1,400 = £4,600.

Now compare that to the old rules, when interest was fully deductible. Her profit would have been £18,000 − £3,000 − £7,000 = £8,000, taxed at 40% = £3,200. So Section 24 costs Priya an extra £1,400 a year on the same property. A basic-rate taxpayer in the same position would be largely unaffected, because their relief and their tax rate are both 20%.

How limited companies are different

Section 24 only applies to individuals. If you hold property through a limited company, mortgage interest is a fully deductible business expense again, and profits are taxed at Corporation Tax rates rather than income tax. For the 2026 financial year that is 19% on profits up to £50,000, rising towards 25% on larger profits (with marginal relief in between).

That can look attractive to higher-rate landlords, but it is not automatically better. You still pay tax personally when you take money out of the company as dividends or salary, mortgage rates for company lending are often higher, and moving an existing personally-owned property into a company can trigger Stamp Duty and Capital Gains Tax. Incorporation is a decision to take with an accountant, not a default. Our guide on Section 24 explained for landlords walks through the trade-offs, and how to invest in property in the UK covers the bigger picture.

Common mistakes landlords make

• Deducting the whole mortgage payment. Only the interest qualifies (and even then only as a 20% credit, not a deduction). Capital repayments are never deductible.
• Treating improvements as repairs. A like-for-like repair is allowable now; an upgrade is capital and only helps with Capital Gains Tax later. Keep the two clearly separated in your records.
• Forgetting that the full rent counts as income. Under Section 24 the gross rent inflates your total income, which can quietly cost you your Personal Allowance, child benefit, or push you into the higher-rate band.
• Missing the registration and filing deadlines. Register for Self Assessment by 5 October after the tax year, file online by 31 January, and pay by the same date. Penalties and interest mount up fast.
• Not splitting income on jointly owned property. For married couples and civil partners, rental income is normally split 50/50 unless you make a formal election to match actual ownership shares.
• Throwing away receipts. Keep records for at least five years after the 31 January filing deadline — HMRC can ask to see them.

Reporting and paying: a quick checklist

• Add up all rent and other income from the property for the tax year.
• Decide between the £1,000 property allowance and actual expenses.
• Work out profit, ignoring mortgage interest at this stage.
• Report it on the property pages of your Self Assessment return.
• Claim the 20% finance-cost (mortgage interest) tax credit.
• File and pay by 31 January. Browse more property tax content in our property guides.

FAQs

How much rent can I earn before paying tax?

If your total rental income is £1,000 or less in a tax year, it is covered by the property allowance and is tax-free. Above that, you pay tax on your profit at your normal income tax rate, after using your Personal Allowance and any allowable expenses.

Is mortgage interest tax deductible for landlords?

Not as a deduction for individual landlords. Since Section 24 took full effect in April 2020, you instead receive a tax credit worth 20% of your mortgage interest. Limited companies can still deduct interest in full.

Do I pay National Insurance on rental income?

Generally no. Letting property is treated as investment income, so it is not subject to National Insurance for most landlords. It is taxed under income tax rules only.

What happens if I make a loss on my rental property?

You can carry the loss forward and set it against future profits from your UK property business. You cannot usually set a rental loss against your salary or other income.

Should I put my rental property in a limited company?

It depends. Companies avoid Section 24 and pay Corporation Tax, which can suit higher-rate landlords, but you face tax when extracting profits, higher mortgage costs, and potential Stamp Duty and Capital Gains Tax on transferring existing properties. Take advice before deciding.

Sources

• Income Tax rates and Personal Allowances — GOV.UK
• Renting out a property: paying tax — GOV.UK
• Tax relief for residential landlords (Section 24) — GOV.UK

This guide is general information, not personal financial advice. For your own circumstances, speak to a qualified adviser.