March 19, 2026
By Merranti

Tax on Rental Income in the UK

If you rent out property in the UK, you will usually need to pay tax on your rental income.

One of the most common questions landlords ask is:

How much tax do I pay on rental income?

The answer depends on:

Your total rental profit
Your other income
Whether you own the property personally or through a company
Mortgage interest rules
Allowable expenses

In this guide, we explain:

How rental income is taxed in 2025/26
What counts as taxable profit
Current Income Tax rates
The mortgage interest restriction
When you must file a tax return
Common mistakes landlords make

Do You Pay Tax on Rental Income?

Yes.

If you receive rental income from property you own personally, it is taxed as part of your personal income.

This includes:

Buy-to-let properties
Holiday lets (with specific rules)
Rental income from part of your home (subject to reliefs)

You are taxed on profit, not total rent received.

How Is Rental Profit Calculated?

Rental profit is:

Total rental income
minus
Allowable expenses

If your allowable expenses exceed rental income, you may make a rental loss, which can usually be carried forward.

What Counts as Rental Income?

Rental income includes:

Monthly rent payments
Advance rent
Fees paid by tenants (if retained)
Charges for services
Non-refundable deposits

You must declare rental income even if:

You only rent the property for part of the year
You make a loss
You are a higher-rate taxpayer through employment

What Expenses Can You Deduct?

You can deduct allowable expenses incurred wholly and exclusively for the rental business.

Common deductible expenses include:

Letting agent fees
Repairs and maintenance (not improvements)
Insurance
Council tax (if you pay it)
Utility bills (if you pay them)
Ground rent and service charges
Accountancy fees
Advertising for tenants

However, there are restrictions around mortgage interest.

Mortgage Interest: The Key Restriction

Since the mortgage interest relief changes, individual landlords can no longer deduct mortgage interest as a normal expense.

Instead:

You receive a 20% basic rate tax credit on mortgage interest.

This means:

Higher-rate taxpayers do not receive full relief at 40%.
Additional-rate taxpayers do not receive relief at 45%.

This has significantly increased the tax burden for many landlords.

Example: Higher-Rate Taxpayer Landlord

Assume:

Rental income: £18,000
Other allowable expenses: £3,000
Mortgage interest: £8,000

Step 1 – Calculate rental profit before interest:

£18,000 – £3,000 = £15,000 taxable profit

Step 2 – Apply Income Tax (if 40% taxpayer):

£15,000 × 40% = £6,000

Step 3 – Apply mortgage interest tax credit:

£8,000 × 20% = £1,600

Final tax on rental income:

£6,000 – £1,600 = £4,400

Under the old system, tax would have been significantly lower.

Income Tax Rates on Rental Income (2025/26)

Rental income is taxed at your marginal rate.

For England in 2025/26:

20% basic rate
40% higher rate
45% additional rate

Your rental profit is added to your other income.

If you are already a higher-rate taxpayer through employment, your rental profit will likely be taxed at 40%.

Do You Have to File a Tax Return?

You must file a Self Assessment tax return if:

Your rental income exceeds £1,000 (after the property allowance consideration)
You have untaxed rental profit

Even if you are employed under PAYE, rental income usually requires Self Assessment registration.

You must register by:

5 October following the end of the tax year in which you started renting.

What Is the Property Allowance?

There is a £1,000 property allowance.

If your total rental income is under £1,000 per year, you may not need to declare it.

If your income exceeds £1,000, you can either:

Deduct actual expenses
or
Deduct the £1,000 allowance

You cannot claim both.

For most landlords with significant expenses, claiming actual costs is more beneficial.

What If You Make a Rental Loss?

If your allowable expenses exceed your rental income:

You make a rental loss
The loss can usually be carried forward
It can be offset against future rental profits

You cannot normally offset rental losses against employment income.

Tax on Jointly Owned Property

If property is owned jointly:

Rental income is normally split according to ownership share
Married couples usually default to 50:50 unless a formal declaration is made

Tax is paid individually on each person’s share.

Ownership structuring can significantly affect tax outcomes.

Tax on Rental Income Through a Limited Company

If the property is owned through a limited company:

The company pays Corporation Tax on profits
Mortgage interest is fully deductible
Dividends paid to shareholders are taxed personally

Corporation Tax rates in 2025/26 are:

19% for profits up to £50,000
25% for profits above £250,000
Marginal relief applies in between

Company structures can be beneficial for some landlords, but dividend tax must also be considered.

When Is Rental Tax Due?

For individual landlords:

Tax is due 31 January following the end of the tax year
Payments on Account may apply
Second Payment on Account is due 31 July

For example:

2025/26 rental profits → tax due 31 January 2027.

Payments on Account often surprise landlords with growing portfolios.

Capital Gains Tax When You Sell

Rental income tax is separate from Capital Gains Tax.

If you sell a buy-to-let property:

Capital Gains Tax may apply
The annual CGT exemption for 2025/26 is £3,000 per individual
Gains above that are taxed at 18% or 24% depending on your income level

Property sales must usually be reported within 60 days of completion.

Common Mistakes Landlords Make

We frequently see:

Not declaring rental income
Incorrectly deducting mortgage interest in full
Claiming capital improvements as repairs
Forgetting to register for Self Assessment
Underestimating Payments on Account
Not budgeting for higher-rate tax

Rental tax is often more complex than expected.

How to Reduce Tax on Rental Income Legally

Options may include:

Ensuring all allowable expenses are claimed
Reviewing ownership structure
Using pension contributions to reduce overall taxable income
Spousal income splitting where appropriate
Incorporation (in some cases, with professional advice)

Each approach must be reviewed carefully based on personal circumstances.

Final Answer: How Is Rental Income Taxed in the UK?

Rental income is taxed as part of your personal income.

You pay tax on rental profit at your marginal Income Tax rate.

Mortgage interest relief is restricted to a 20% tax credit for individual landlords.

Tax is paid through Self Assessment, usually by 31 January following the tax year.

If you are a higher-rate taxpayer with a mortgage, the effective tax burden can be significant.

Because property taxation involves Income Tax, National Insurance considerations, Capital Gains Tax, and sometimes Corporation Tax, structured planning is often advisable.

Individual circumstances vary, and professional advice should be taken before restructuring property ownership or implementing tax planning strategies. Talk to Merranti Accounting today