How Much Tax Do You Pay on Rental Income in the UK?

 

If you let out a property, one of the first questions you will ask is how much tax do you pay on rental income in the UK. The short answer is that rental profits are taxed at your normal Income Tax rates — but there are allowances, deductions and recent rule changes that make a real difference to your final bill. Here is what every landlord needs to know for the 2026/27 tax year.

You Are Taxed on Profit, Not Total Rent

HMRC does not tax the full rent you collect. Instead, you pay tax on your rental profit — the rent you receive minus your allowable expenses. That profit is then added on top of your other income, such as a salary, and taxed at your marginal rate: 20% for basic-rate taxpayers, 40% for higher-rate and 45% for additional-rate taxpayers in England, Wales and Northern Ireland. Scotland sets its own income tax bands.

Every individual also has a £12,570 personal allowance, plus a separate £1,000 property allowance. If your gross rental income for the year is £1,000 or less, it is usually tax-free and you do not need to declare it.

Allowable Expenses You Can Deduct

Claiming every legitimate cost is the simplest way to reduce your tax bill. Common allowable expenses include:

• Letting agent and property management fees

• Repairs and maintenance (genuine repairs, not improvements)

• Buildings and contents insurance

• Ground rent and service charges

• Council tax and utility bills, if you pay them

• Accountancy and certain legal fees

• Advertising for new tenants

You may also claim "replacement of domestic items relief" when you replace furnishings such as sofas, beds or carpets in a furnished let. Keeping accurate records of these costs throughout the year makes your Self Assessment far easier and protects you if HMRC ever questions the figures for your rental property.

The Mortgage Interest Rule (Section 24)

This is the change that catches many landlords out. Since April 2020, individual landlords can no longer deduct mortgage interest as an expense. Instead, you receive a basic-rate (20%) tax credit on your finance costs, regardless of which tax band you fall into. For higher-rate taxpayers this matters a great deal: on £6,000 of annual mortgage interest you now get £1,200 of relief rather than the £2,400 you would have received under the old rules. Limited companies are not affected, which is why some investors hold property through a company and pay Corporation Tax (19% to 25%) instead.

How and When to Declare

If your rental profit exceeds the £1,000 property allowance, you must register for Self Assessment and report it to HMRC. Paper returns are due by 31 October following the tax year, while online returns are due by 31 January.

From 6 April 2026, Making Tax Digital for Income Tax also applies to landlords whose combined property and self-employment income is over £50,000, requiring quarterly digital updates. That threshold falls to £30,000 from April 2027 and £20,000 from April 2028, so most landlords will be brought into the system over the next few years.

What's Changing from April 2027

Announced in the Autumn 2025 Budget, property income will move onto its own set of tax rates from April 2027 — 22%, 42% and 47%, which are two percentage points above the standard income tax rates. The mortgage interest tax credit will rise slightly from 20% to 22%, but this does not fully offset the increase for higher-rate landlords. The government's reasoning is that rental income carries no National Insurance, so it is being taxed closer to earned income.

Final Thoughts

So, how much tax do you pay on rental income in the UK? It depends on your total income, your allowable expenses and how you own the property but for most individual landlords in 2026/27 the answer is 20%, 40% or 45% on profit, with mortgage interest relief restricted to a 20% credit. Claim every expense you are entitled to, keep good records, prepare for Making Tax Digital and consider speaking to a property accountant if you are a higher-rate taxpayer or run a portfolio. Tax treatment depends on individual circumstances and the rules can change, so professional advice is always worthwhile.