If you receive income from renting out a property in the UK, you almost certainly have a tax obligation to HMRC — even if it is just one room in your own home. This guide covers everything UK landlords need to know about rental income tax in 2025/26, including how much you pay, what you can deduct, the Section 24 mortgage interest restriction, and the Making Tax Digital changes coming for landlords from April 2026. All figures and rules are verified from HMRC and official government sources as of June 2026.

Do I Need to Pay Tax on Rental Income in the UK?

Yes, rental income is taxable in the UK just like employment income. It is added to your other income and taxed at your marginal Income Tax rate. However, there are some important allowances and thresholds that determine exactly when and how much you pay:

Gross Rental Income	What You Need to Do
£1,000 or less per year	Fully covered by the Property Income Allowance — no tax, no reporting required
Between £1,000 and £2,500 after expenses	Contact HMRC directly — they may collect tax through your tax code
Over £2,500 profit after expenses	Must register for Self Assessment and file an annual tax return
Gross income over £10,000	Must register for Self Assessment regardless of profit level

Registration deadline: If you started receiving rental income during the 2025/26 tax year, you must register with HMRC for Self Assessment by 5 October 2026. Missing this deadline can result in penalties even if you owe no tax.

How Much Tax Do I Pay on Rental Income?

Rental profit — your income after allowable expenses is added to all your other income for the year and taxed at your marginal rate. For 2025/26 the Income Tax rates are:

Income Band	Tax Rate
Up to £12,570 (Personal Allowance)	0%
£12,571 to £50,270 (Basic Rate)	20%
£50,271 to £125,140 (Higher Rate)	40%
Over £125,140 (Additional Rate)	45%

Because rental profit is added to your other income, if you already earn £40,000 from employment and make £15,000 rental profit, your total income is £55,000. The portion above £50,270 will be taxed at 40% — even though your rental profit alone would sit in the basic rate band.

Worked example: Sarah is employed and earns £35,000. She has a buy-to-let property generating £14,400 rental income per year. After allowable expenses of £3,400 (insurance, agent fees, repairs), her rental profit is £11,000. Her total income is £46,000 — still within the basic rate band. She pays 20% on the £11,000 rental profit = £2,200 tax. Note: mortgage interest is handled separately under Section 24 — see below.

Coming from April 2027: The government has proposed introducing property income tax rates 2% higher than standard Income Tax rates — meaning basic rate landlords could pay 22% and higher rate landlords 42% on rental profits. This has not yet been legislated but has been announced. Speak to an accountant to understand how this may affect your position.

What Is the £1,000 Property Income Allowance?

Every individual in the UK has a £1,000 Property Income Allowance per tax year. If your total gross rental income — before any expenses — is £1,000 or less, it is completely exempt from Income Tax and you do not need to report it to HMRC at all.

If your gross rental income exceeds £1,000, you have a choice:

• Claim the £1,000 allowance — deduct £1,000 from gross income and pay tax on the rest. Simple but rarely the best option if you have real expenses.
• Claim actual allowable expenses — deduct your real costs (insurance, repairs, agent fees, etc.) instead. Almost always more beneficial unless your expenses are genuinely below £1,000.

Important: You cannot claim both the £1,000 Property Income Allowance and Replacement Domestic Items Relief in the same tax year. Claim whichever gives you the greater deduction — in most cases, actual expenses will be significantly higher than £1,000.

What Expenses Can I Deduct From My Rental Income?

You pay tax on your rental profit, not your total rental income. This means you can deduct allowable expenses before calculating how much tax you owe. To qualify, expenses must be incurred wholly and exclusively for the purpose of renting out the property.

Allowable Expenses — You Can Deduct These

• Letting agent fees and management charges
• Buildings and contents insurance premiums
• Maintenance and repairs — keeping the property in its current condition
• Council tax, water rates, and utility bills (if paid by you, not the tenant)
• Ground rent and service charges (leasehold properties)
• Accountancy fees for preparing rental accounts
• Advertising costs to find tenants
• Legal fees for tenancy agreements (not for buying or selling the property)
• Travel costs to visit the property for genuine management purposes

Not Allowable — You Cannot Deduct These

• The cost of buying the property
• Capital improvements (adding a new extension, converting a loft) — these are capital costs and may reduce CGT instead
• Personal expenses unrelated to the rental
• Mortgage interest — this is handled separately under Section 24 (see below)
• The cost of furnishing the property for the first time — only replacements qualify under RDIR

What Is Section 24 and How Does It Affect Landlords?

This is the single biggest tax change to affect UK landlords in recent decades — and one that still catches many people off guard. Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how mortgage interest is treated for residential landlords.

Before Section 24

Landlords could deduct 100% of their mortgage interest from rental income before calculating their taxable profit. If you earned £20,000 in rent and paid £12,000 in mortgage interest, you were taxed on £8,000.

After Section 24 (fully in effect since April 2020)

You can no longer deduct mortgage interest from your rental income. Instead, you receive a 20% basic-rate tax credit on your finance costs — regardless of whether you are a basic, higher, or additional rate taxpayer.

Section 24 impact example: James is a higher rate taxpayer. Rental income: £20,000. Mortgage interest: £12,000. Allowable expenses (repairs, insurance): £2,000.

Old system: Taxable profit = £20,000 − £12,000 − £2,000 = £6,000. Tax at 40% = £2,400.

Section 24: Taxable profit = £20,000 − £2,000 = £18,000. Tax at 40% = £7,200. Then deduct 20% tax credit on mortgage interest: 20% × £12,000 = £2,400. Final tax bill = £7,200 − £2,400 = £4,800.

James pays £2,400 more tax per year on exactly the same property, purely due to Section 24.

Section 24 also affects your income band. Because HMRC now calculates your income before deducting mortgage interest, you may appear to earn more than you actually do — potentially pushing you from basic rate into higher rate, or above £100,000 where you begin losing your Personal Allowance. This is one of the most important reasons landlords should get professional tax advice.

Section 24 applies to individual landlords only. Limited companies can still deduct mortgage interest as a business expense in full. This is why many landlords with larger portfolios have considered incorporating — though the decision involves stamp duty, CGT, and many other factors and should never be taken without professional advice.

From 6 April 2025, Section 24 also applies to former Furnished Holiday Lets following the abolition of the FHL tax regime.

What Is Replacement Domestic Items Relief (RDIR)?

If you let a furnished residential property, you can claim Replacement Domestic Items Relief (RDIR) when you replace furniture, white goods, carpets, and similar items. This replaced the old 10% wear and tear allowance in April 2016.

Key rules:

• You can only claim when replacing an item — not when furnishing the property for the first time
• Relief is limited to the cost of a like-for-like equivalent — if you upgrade, you can only deduct what an equivalent replacement would cost
• If you sell the old item, the proceeds reduce your claim
• Claim on Box 27 of the SA105 UK Property pages of your Self Assessment return
• RDIR is not affected by Section 24 — it is a straightforward expense deduction

RDIR example: Your tenant’s sofa is damaged beyond repair. A like-for-like replacement sofa costs £600. You decide to buy a better model costing £900. Your allowable RDIR deduction is £600 — the cost of the equivalent replacement. The extra £300 for the upgrade is not deductible.

What Is the Rent a Room Scheme and How Much Can I Earn Tax-Free?

If you rent out a furnished room in your own home — the property where you live — you may qualify for the Rent a Room Scheme. This allows you to earn up to £7,500 per year in gross rental income completely tax-free.

Key points:

• The £7,500 threshold applies per property — if two people jointly own the property, each person’s threshold is £3,750
• If your gross income from the room exceeds £7,500, you must either pay tax on the excess above £7,500, or opt out and calculate profit using actual expenses instead
• You cannot use the Rent a Room Scheme if the room is let to someone as a self-contained flat or if you let the property while you are not living there
• The scheme is automatic — you do not need to register for it — but if you exceed £7,500 you must declare this on your Self Assessment return

How Do I Report Rental Income to HMRC?

Rental income is reported through a Self Assessment tax return using the SA105 UK Property supplementary pages alongside your main SA100 return. These pages cover all your rental income, expenses, Section 24 tax credit, and RDIR claims.

Key deadlines for 2025/26:

• 5 October 2026 — register for Self Assessment if this is your first year of rental income
• 31 January 2027 — online Self Assessment return and tax payment deadline
• 31 July 2027 — second Payment on Account if applicable

Payments on Account: If your tax bill exceeds £1,000, HMRC requires advance payments towards the following year’s bill. Your first Self Assessment payment will include your current year’s tax PLUS the first Payment on Account — potentially 150% of what you expected to pay. Budget for this from the start.

What Is Making Tax Digital for Landlords and When Does It Start?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC’s programme to move landlords and self-employed people to quarterly digital reporting. Instead of one annual Self Assessment return, you will submit quarterly updates throughout the year using HMRC-approved software.

The rollout for landlords is based on gross rental income thresholds:

From	Who Must Comply
6 April 2026	Landlords with gross rental income over £50,000 (or combined rental + self-employment income over £50,000)
6 April 2027	Landlords with gross rental income over £30,000
6 April 2028	Landlords with gross rental income over £20,000

This applies to gross income — before expenses. If you have three properties each generating £20,000 gross rent (£60,000 total) but only £10,000 profit after expenses, you must still comply from April 2026. If you also have self-employment income, the thresholds apply to the combined total.

Should I Put My Rental Property in a Limited Company?

This is one of the most common questions from landlords — particularly those affected by Section 24. Limited companies can still deduct mortgage interest in full as a business expense, which makes them significantly more tax efficient for higher rate taxpayers with mortgaged properties.

However, incorporating is not a simple decision. It involves:

• Stamp Duty Land Tax — transferring an existing property into a company triggers SDLT at the full rate including the 3% surcharge
• Capital Gains Tax — transferring a property you already own into a company is a disposal for CGT purposes
• Mortgage complications — most residential buy-to-let mortgages cannot be transferred to a company; you would need to refinance
• Corporation Tax on profits — currently 25% for companies with profits over £250,000, 19% for profits under £50,000
• Additional costs — company accounts, annual filing at Companies House, more complex tax returns

The decision depends entirely on your individual situation — your tax rate, how many properties you own, your mortgage position, and your long-term plans. For some landlords it makes excellent sense. For others the costs of transferring outweigh the savings. Always get specialist tax advice before making this decision.