UK Rental Income Tax: Complete Guide for Landlords
Introduction
If you receive income from renting out property in the UK, you must report it to HMRC and may need to pay Income Tax on your profits. This guide explains how rental income is taxed, what expenses you can deduct, and the key rules landlords need to understand for the 2025/26 tax year.
Whether you rent out a single buy-to-let property or manage a portfolio, understanding your tax obligations helps you stay compliant and potentially reduce your tax bill.
How Rental Income Is Taxed
Rental income is added to your other income and taxed at your marginal Income Tax rate.
Tax bands for 2025/26
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Your rental profit is calculated as:
Rental Income - Allowable Expenses = Taxable Profit
This profit is then added to any employment income, self-employment profits, or other taxable income to determine your overall tax liability.
The Property Income Allowance
HMRC offers a £1,000 Property Income Allowance that can simplify reporting for landlords with modest rental income.
How it works
- If your total property income is £1,000 or less, you do not need to report it to HMRC.
- If your property income exceeds £1,000, you can choose to either:
- Deduct the £1,000 allowance instead of actual expenses, or
- Claim actual allowable expenses
When to use the allowance
The property allowance is most useful when:
- Your actual expenses are less than £1,000
- You want to simplify your record keeping
- You have occasional rental income (e.g., from renting a driveway or room)
If your expenses exceed £1,000, claiming actual costs will usually result in a lower tax bill.
Allowable Expenses for Landlords
You can deduct legitimate business expenses from your rental income before calculating tax.
Common allowable expenses
Property maintenance and repairs
- General repairs (fixing a boiler, replacing broken windows)
- Redecorating between tenants
- Garden maintenance
- Cleaning costs
Insurance and professional fees
- Landlord insurance
- Letting agent fees
- Legal fees for short leases (one year or less)
- Accountancy fees
Running costs
- Council tax (if paid by you)
- Water rates and utility bills (if paid by you)
- Ground rent and service charges
Administrative costs
- Advertising for tenants
- Phone calls related to the property
- Stationery and office costs
- Travel to inspect the property
What you cannot claim
- Capital improvements (adding an extension, installing a new bathroom)
- Personal expenses (your own accommodation costs)
- Initial property purchase costs (stamp duty, conveyancing for buying the property)
- The full mortgage payment (only interest qualifies, with restrictions)
Mortgage Interest Relief Rules
Since April 2020, landlords can no longer deduct mortgage interest as an expense. Instead, you receive a tax credit based on 20% of your mortgage interest.
How it works
- Calculate your rental profit without deducting mortgage interest
- Pay tax on this full profit at your marginal rate
- Receive a 20% tax credit on your mortgage interest payments
Example
If you have:
- Rental income: £15,000
- Other expenses: £3,000
- Mortgage interest: £4,000
Old rules (pre-2020): Taxable profit = £15,000 - £3,000 - £4,000 = £8,000
Current rules: Taxable profit = £15,000 - £3,000 = £12,000 Tax credit = £4,000 x 20% = £800
This change particularly affects higher-rate taxpayers, who now pay 40% tax on profit but only receive 20% relief on mortgage interest.
Replacement of Domestic Items Relief
Since April 2016, landlords cannot claim wear and tear allowance. Instead, you can claim Replacement of Domestic Items Relief when you replace:
- Furniture
- Furnishings
- Household appliances
- Kitchenware
Conditions
- You can only claim when replacing an existing item (not initial furnishings)
- Relief is based on the cost of an equivalent replacement, not an upgrade
- If you upgrade, you can only claim the cost of a like-for-like replacement
Rent-a-Room Relief
If you rent out a furnished room in your main home, you may qualify for Rent-a-Room Relief.
Key features
- Tax-free threshold: £7,500 per year
- Applies to furnished accommodation in your main residence
- Includes bed and breakfast income
How it works
- If rental income is £7,500 or less, you pay no tax and do not need to report it
- If income exceeds £7,500, you can either:
- Pay tax on the amount over £7,500, or
- Calculate profit in the normal way (income minus expenses)
Rent-a-Room Relief is separate from the £1,000 property allowance and cannot be combined with it.
Reporting Rental Income
You report rental income through Self Assessment.
Who must file
You must submit a Self Assessment tax return if:
- Your rental income exceeds £1,000 (and you are not using the property allowance)
- You have any tax to pay on rental profits
- HMRC asks you to file a return
Key deadlines
| Deadline | Date |
|---|---|
| Register for Self Assessment | 5 October after the tax year ends |
| Paper tax return | 31 October |
| Online tax return | 31 January |
| Pay any tax owed | 31 January |
For the 2025/26 tax year (6 April 2025 to 5 April 2026), the online filing deadline is 31 January 2027.
Making Tax Digital for Landlords
From April 2026, landlords with property income over £50,000 must comply with Making Tax Digital for Income Tax Self Assessment (MTD ITSA).
Requirements
- Use MTD-compatible software to keep digital records
- Submit quarterly updates to HMRC
- File an End of Period Statement and Final Declaration
Landlords with income between £30,000 and £50,000 will need to comply from April 2027.
How QTax Helps
QTax supports landlords by:
- Helping you calculate rental profits and allowable expenses
- Ensuring mortgage interest relief is correctly applied
- Preparing your Self Assessment return with all required property income details
- Keeping you informed of deadlines and compliance requirements
FAQs
Do I pay National Insurance on rental income?
No, rental income is not subject to National Insurance contributions unless HMRC considers your property activities to be a trade (which is rare for most landlords).
Can I offset rental losses against other income?
Rental losses can only be carried forward to offset future rental profits from the same property business. You cannot offset them against employment or self-employment income.
What if I jointly own a property?
If you jointly own a rental property, income is usually split equally between owners (50/50 for two owners). You can file a Form 17 with HMRC to declare a different split if ownership is unequal.
Do I need to tell HMRC if I sell a rental property?
Yes. When you sell a rental property, you may owe Capital Gains Tax (CGT). You must report and pay any CGT within 60 days of completion using HMRC's online service.
Conclusion
Understanding how rental income is taxed helps you manage your property investments effectively and stay compliant with HMRC. By claiming all allowable expenses and understanding the mortgage interest relief rules, you can ensure you are not paying more tax than necessary.
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