How much tax do you pay on rental income?

If you earn income from renting out property in the UK, you may need to pay tax on your rental profits. The amount you pay depends on your total income, allowable expenses and any tax reliefs available.  

This guide explains how rental income is taxed, what allowances apply and how to calculate your tax bill.  

Landlords must also be aware of if and when they need to join the Making Tax Digital (MTD) for income tax regime with HMRC. 

For landlords with property income above:

• £50,000, MTD for income tax started on 6th April 2026,  
• £30,000, MTD for income tax will start from 6th April 2027, and  
• £20,000, MTD for income tax will start from 6th April 2028. 

Do you have to pay tax on rental income?

In most cases, yes you do need to pay tax on rental income. Rental income is taxable after deducting allowable expenses and reliefs.  

Most landlords currently report and pay their income tax under self-assessment, but from 6th April 2026 the first wave of landlords (along with self-employed sole traders) will join MTD for income tax.  

How much rental income is tax-free?  

Property allowance 

Landlords earning less than £1,000 rental income (before expenditure) will not be subject to income tax, as this will be covered by their property allowance.  

If you receive property income of more than £1,000 a year, you can either: 

• deduct allowable expenses, or  
• claim the £1,000 property allowance 

but not both. 

Landlords receiving gross income between £1,000 to £2,500 should contact HMRC to confirm their reporting requirements.  

Where rental income of £2,500 or more is received, you will need to register for self-assessment and file a self-assessment tax return by the 31st January after the tax year-end.  

Rent-a-room scheme 

If you let out a room in your main home, and live there alongside your tenant, rent-a-room relief can be utilised.  

This allows you to earn up to £7,500 per year tax- free. If you jointly own the property, this is reduced to £3,750. 

Moving abroad 

If you move abroad and let out your UK residential property will need to consider your income tax reporting requirements.  

You are classed as a ‘non-resident landlord’ by HMRC if you move abroad for six months or more while renting out a UK property. 

Income tax on your rental income can either be: 

• deducted at source from rental income by your letting agency or your tenant or 
• paid by filing a self-assessment tax return 

More guidance on reporting if you moved abroad can be found here. 

You can check whether you need to complete a self-assessment tax return on HMRC's website. 

How do I calculate tax on rental income? 

You pay tax on your profit, not total rental income received.  

Step 1: Rental income  

The following types of payments will be classified as property income: 

• rent payments 
• service charges 
• reimbursement of expenditure, such as utility bills, repairs or cleaning costs 
• non-refundable deposits 
• money kept from returnable deposits 

Step 2: Deduct allowable expenses  

Expenditure incurred wholly and exclusively for the purpose of the rental business, which is not capital in nature, can be deducted against rental income.  

Capital means the cost of the land and the building, plus  expenditure that enhances and improves the value of the property or the plot of land it is on.  

The following types of expenditure can be deducted against rental income: 

• Letting agent and professional fees 
• Legal fees on lets of a year or less, or for renewing a lease less than 50 years 
• Accountancy fees related to your letting business 
• Costs of maintenance and repair work (but only repairs to maintain its current standard – improvements are not allowable expenses) 
• Utility bills such as, gas, electricity, water and council tax 
• Insurance e.g. landlord’s buildings insurance 
• Rent, ground rent and service charges 
• Advertising costs to find new tenants 
• Services such as cleaning or gardening 
• Stationery, postage costs and telephone costs when finding new tenants 
• Costs of replacing domestic items 

If the total costs for the year are less than £1,000, it makes sense to claim the property allowance instead of calculated expenses. However, if you receive rental income from the following sources the property allowance will not be available: 

• A company which you or someone who is connected to you owns or controls 
• A partnership in which you or someone who is connected to you is classified as a partner 
• Your employer or the employer of your spouse or civil partner 

Step 3: Calculate taxable rental profit  

Once you have calculated your income and expenditure, you can deduct the total allowable expenditure (or the property allowance) to calculate the taxable rental profit for the year. 

Step 4: Add to other income  

Rental profit is added to salary, pension or other income and taxed at the relevant income tax rates. For the 2026/27 tax year property income is taxed at the standard income tax rates across all the home nations. 

However, from 6th April 2027, residential property income will be taxed at new higher property income tax rates in England, Wales and Northern Ireland. The initial rates will be 2% higher than the standard basic, higher and additional rates. Scottish income tax rates are unaffected. You can calculate their taxable profit using the cash basis or the accruals method. Most landlords will use the cash basis as it is the default method and is simpler, but looking at which is more tax-efficient is recommended. 

Mortgage interest and finance cost relief  

Mortgage interest is no longer fully deductible for individual landlords. Instead, most landlords receive a 20% tax reducer on mortgage interest and finance costs.  This means higher and additional rate taxpayers often pay more tax than before 2020, when interest was fully deductible.  

For commercial properties, the finance cost restriction rules will not apply. Instead, the costs are fully deductible against income.

How much tax do you have to pay on rental income?

If your total earnings in the tax year are less than the personal allowance, you won’t pay income tax on the rental profit. Once your income is more than the personal allowance, you’ll be taxed on the profits you make.

Remember, if you receive rental income of £1,000 or less, this will be covered by the property allowance and income tax will not be payable. This is regardless of whether or not you earn other income above the personal allowance. 

From 6th April 2026, the following income tax rates will apply on your rental profits. 

England, Wales and Northern Ireland

Income tax band	Taxable income	Tax rate
Personal allowance	Up to £12,570	0%
Basic rate	£12,571 - £50,270	20%
Higher rate	£50,271 - £125,139	40%
Additional rate	Over £125,140	45%

Scotland

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Starter rate	£12,571 to £16,537	19%
Basic rate	£16,538 to £29,526	20%
Intermediate rate	£29,537 to £43,662	21%
Higher rate	£43,663 to £75,000	42%
Advanced rate	£75,001 to £125,140	45%
Top rate	over £125,140	48%

Do I need to pay National Insurance contributions (NICs) on rental income? 

Landlords with profits under £7,105 can pay voluntary class 2 NICs if they fall within Tier 3 of the HMRC guidance here. Most landlords will not fall within Tier 3 under the HMRC definitions.  

Landlords are exempt from Class 4 NICs. 

How do I deal with rental income tax on multiple property lettings? 

If you own multiple properties in the UK, you will need to add all your income and expenditure from each property together to calculate your total taxable rental profit for a tax year.  

If you own property in both the UK and overseas will need to keep the income and expenditure separate as these profits will be reported separately on your self-assessment tax return. From a practical perspective, you should keep your rental finances separate from your personal expenditure. This will help with reporting and delivery of information to your accountant and if you use bookkeeping software such as QuickBooks, Xero or Hammock, it will prevent personal spending from being pulled through from your bank feed or other sources. 

How do I pay income tax? 

Self-assessment 

Landlords are required to pay income tax through self-assessment, until and unless you meet the threshold to join MTD for income tax 

If you receive UK rental income but live outside the UK, you may have tax withheld at source by their letting agent or tenant. The rent is still taxable in the UK and HMRC will still require a UK self-assessment tax return to be submitted. 

If you are not already registered for self-assessment, you will need to register for self-assessment, by 5th October following the end of the tax year where you started to receive rental income. 

Once registered, a self-assessment tax return can be submitted electronically or on paper. Those submitting a tax return electronically will need to ensure these are with HMRC by 31st January following the end of the tax year. If a paper return is submitted the return will need to be submitted by 31st October following the end of the tax year. 

There are many ways which HMRC accept payment, a summary of which can be found here. 

Making Tax Digital for income tax 

If you had £50,000 or more of qualifying income from property and/or self-employment in your 2024/25 self-assessment tax return, you need to join MTD for income tax from 6th April 2026. For more information see our guide here. 

When do you pay income tax?

Where  an income tax liability is due, you will need to pay the outstanding tax by 31st January following the end of the tax year. If you are required to make payments on account towards your income tax liability you will have an additional payment date to consider of 31st July. 

Payment on accounts will not be required where the following conditions are met: 

• Your income tax liability for the year is less than £1,000 or 
• You paid more than 80% of your previous year's tax liability at source, for example PAYE 

An individual who is required to make payments on account will be paying their income tax in advance. The due dates for payments on account are 31st January and 31st July for the relevant tax year. 

The following example will help illustrate the payment dates for balancing payments and payments on account for a landlord with a tax liability of £5,000 for 2025/26, who is required to make payments on account for 2026/27. 

Tax year and payment	Payment due date	Amount payable
2023/24 Payment	31st January 2027	£5,000
2024/25 1st payment on account	31st January 2027	£2,500
2024/25 2nd payment on account	31st July 2027	£2,500
2024/25 Balancing payment	31st January 2028	If necessary

Where payment deadlines are not met interest will accrue on the outstanding balance along with penalties potentially becoming payable.

What if I make a loss?

If your allowable expenditure is more than your rental income in a tax year, you will have made a loss. These losses will be carried forward and offset against future profits you make in your property business. 

If you own property in the UK and abroad, these profits and losses are calculated separately. Any losses arising in either of the UK or overseas property business are kept separate and offset against future profits in each. 

To notify HMRC of a loss, your self-assessment tax return will need to be submitted showing the loss to be carried forward.  

Is there any tax if I sell my rental properties? 

When selling property, you will need to assess whether there is any capital gains tax (CGT) to pay. This is especially necessary for  properties that are buy-to-lets, rather than your main home, inherited property or business premises. 

If you are UK resident you must report and pay any CGT on the sale of UK residential property within 60 days of completion. More HMRC guidance on this can be found here.      

Non-resident individuals must report disposals of all UK land or property (not just disposals of residential property), whether or not they make a gain. This requirement also extends to disposals of shares in assets which derive 75% of their value from UK land. More HMRC guidance on this can be found here.   

To assist with calculating the CGT position you can make use of HMRC’s CGT calculator.

Why are more landlords using limited companies? 

Companies House figures show that buy-to-let landlords set up a record 66,587 companies in 2025, which was an 8% increase on 2024.  

This is thought to be due to several factors including: 

• mortgage interest relief restrictions for individuals who pay higher or additional rate income tax  
• long-term tax planning considerations 
• ability to defer personal tax until profits are extracted  
• potential relief from Inheritance Tax after death 

However, company ownership also brings:  

• additional administration  
• higher accountancy costs  
• tax on dividends or salary when profits are withdrawn as well as corporation tax on company profits 
• potential stamp duty land tax and CGT on transfer of existing properties  

You should always seek professional advice before moving property into a company.  

How TaxAssist Accountants can help

TaxAssist Accountants offers a range of services for UK landlords and offers helpful tax support. Whether it’s help with your self-assessment tax return, advising on capital gains tax or even practical support with managing your property business, we can do it all. Call us now on 01234 331777 or get in touch with our team today.

Last updated 10 Apr 2026 | First published 18 Apr 2023

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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