Rental Income Tax in the UK: What Landlords Pay in 2026/27

Rental income from UK property is taxable. Whether you rent out a single room, a flat, a house, or multiple properties, the income forms part of your total taxable income and is declared through Self Assessment. The rules around what you can deduct from rental income — and the restrictions on mortgage interest that came into full effect in 2020 — make the UK rental income tax regime meaningfully different from what many landlords expected when they started investing.

This guide explains how rental income is taxed, what expenses you can offset, and the key restrictions that affect buy-to-let landlords specifically.

How rental income is taxed

Rental income from residential property is classified as property income for UK tax purposes. It is added to your other income — employment, self-employment, pension, dividends — and taxed at your marginal income tax rate.

For 2026/27, income tax rates are:

0% on the first £12,570 (personal allowance)
20% on income from £12,571 to £50,270 (basic rate)
40% on income from £50,271 to £125,140 (higher rate)
45% above £125,140 (additional rate)

Rental income is not subject to National Insurance — neither Class 2 nor Class 4. However, it does consume your personal allowance and tax bands. If you also have employment income that already fills your basic rate band, rental income will be taxed at the higher rate from the first pound.

You must declare rental income on your Self Assessment tax return if:

Your rental income exceeds £2,500 per year after expenses (£10,000 before expenses), or
You are already required to file a Self Assessment return for other reasons (such as self-employment)

The property income allowance (£1,000)

If your gross rental income in a tax year is £1,000 or less, it is completely exempt from tax under the property income allowance. You don't need to declare it.

If your rental income exceeds £1,000, you have two options:

Claim the £1,000 property income allowance as a flat deduction (instead of claiming actual expenses)
Deduct actual allowable expenses in the normal way

The property income allowance is only worthwhile if your actual expenses are less than £1,000, which is uncommon for most landlords. Most will deduct actual costs.

Use the Property Allowance Calculator to see which option is better for your situation.

Allowable expenses for residential landlords

Landlords can deduct the following from rental income:

Running costs:

Letting agent fees and management fees
Accountancy fees related to the rental income
Buildings and contents insurance for the rental property
Maintenance and repairs (not improvements — see below)
Ground rent and service charges (leasehold properties)
Water, gas, and electricity bills if paid by the landlord (not the tenant)
Council tax if paid by the landlord during void periods
Advertising costs to find tenants

Finance costs:

Mortgage interest — subject to the restriction described below

Other:

Cost of replacing furnishings in furnished properties (the replacement of domestic items relief)

What you cannot claim:

Capital expenditure (adding an extension, converting a loft, building a garden room)
The cost of improvements — only like-for-like repairs are allowable. Fitting a new kitchen of equivalent quality is a repair; fitting a substantially better kitchen may be a capital improvement.
Your own time spent managing the property

The mortgage interest restriction

This is the most significant change to residential landlord taxation in recent decades. From April 2020, individual landlords (as opposed to limited companies) can no longer deduct mortgage interest as a direct expense from rental income.

Instead, mortgage interest is provided as a tax credit at the basic rate (20%). The credit is calculated as 20% of the lower of:

The finance costs (mortgage interest) paid in the year
The rental income (net of other expenses)
Adjusted total income

Why this matters: Under the old system, a higher rate taxpayer could deduct mortgage interest against income taxed at 40%, receiving 40p in tax relief for every £1 of interest. Under the new system, the credit is only 20p per £1 — regardless of their tax rate. For higher rate taxpayers with large mortgages, this effectively doubled the after-tax cost of financing.

Example (higher rate taxpayer):

Rental income: £18,000
Mortgage interest: £10,000
Other allowable expenses: £2,000
Taxable rental profit: £18,000 − £2,000 = £16,000
Income tax on £16,000 at 40%: £6,400
Mortgage interest tax credit: £10,000 × 20% = £2,000
Net tax liability: £6,400 − £2,000 = £4,400

Under the old system, profit would have been £6,000 (£18,000 − £10,000 − £2,000), and tax at 40% would have been £2,400. The change has roughly doubled the tax bill in this example.

Limited companies are not subject to the mortgage interest restriction — they can still deduct mortgage interest as a business expense in full. This is why many higher-rate landlords have considered incorporating, though incorporation triggers Stamp Duty and potential Capital Gains Tax on transfer.

The Rent-a-Room scheme

If you let a furnished room in your own home (as opposed to a separate property you own), you may be eligible for the Rent-a-Room scheme. Under this scheme, the first £7,500 per year of rental income from a room in your home is completely exempt from tax. If you share the income with someone else (a joint owner), the exemption is £3,750 each.

The scheme is available to both homeowners and those who rent their property (with landlord permission). It's one of the most generous tax exemptions available and is worth using if the conditions apply.

Furnished Holiday Lettings

Until recently, properties let as furnished holiday lettings (FHL) had a special tax status — treated more like a trade than property investment, allowing losses to be set against other income and mortgage interest to be deducted in full. The FHL regime was abolished from 6 April 2025. Properties that were FHLs are now treated as ordinary rental property for tax purposes.

This is a significant change for owners of short-let properties on platforms such as Airbnb. Mortgage interest is now subject to the same restriction as residential landlords, and losses can no longer be set against other income.

Completing the Self Assessment return

Rental income and expenses are declared on the SA105 supplementary page of the Self Assessment tax return. You report:

Total rental income received
Total allowable expenses
Net profit (or loss)
Mortgage interest separately (for the tax credit calculation)

If you have multiple properties, all UK residential property income and expenses are pooled together — you don't declare each property separately. Losses from one property offset profits from another.

The Self Assessment Estimator and Income Tax Calculator can help you estimate your overall tax position including rental income.