How Rental Income Is Actually Taxed

Tax is where new landlords most often get an unpleasant surprise, usually eighteen months after buying, when the first self-assessment bill lands. Here is how rental income is actually taxed in the UK, in plain English.

The basics: income tax on rental profit

Rental profit — rent received minus allowable expenses — is added to your other income and taxed at your marginal rate (20%, 40% or 45%). Allowable expenses include letting agent fees, insurance, repairs and maintenance (not improvements), ground rent and service charges, accountancy, and replacement of domestic items. If your gross property income is under £1,000 a year, the property allowance means there is nothing to report at all.

The mortgage interest trap (Section 24)

Since 2020, individual landlords cannot deduct mortgage interest as an expense. Instead you get a 20% tax credit on the interest. Basic-rate taxpayers mostly come out the same; higher-rate taxpayers pay meaningfully more than the old rules — and because the calculation works on rental income before interest, it can even push you into a higher band. This single change is why heavily mortgaged higher-rate landlords now often make less after tax than they expect, and why some use limited companies (which deduct interest in full but bring their own costs and mortgage pricing — take advice before restructuring).

When you sell: capital gains tax

Selling a rental property triggers capital gains tax on the gain above your annual CGT allowance, at the residential property rates (currently 18% within the basic band and 24% above it). You must report and pay within 60 days of completion — a deadline many landlords still miss. Keep records of purchase costs, stamp duty, legal fees and capital improvements, all of which reduce the taxable gain.

Making Tax Digital is coming for landlords

From April 2026, landlords with combined property and self-employment income over £50,000 must keep digital records and file quarterly updates under Making Tax Digital for Income Tax, with the threshold dropping in later years. If that is you, moving to compatible software before the deadline beats scrambling after it.

Keeping it clean

Report rental income through self-assessment from the first pound of profit (or use HMRC's let property campaign to catch up if you are behind — voluntary disclosure is treated far more gently than being found). Alongside tax, make sure the rest of your compliance stack is in order too: our legal obligations guide and insurance guide cover the other recurring costs worth budgeting for.

This is general information about the law in England, not personalised legal advice — Scotland, Wales and Northern Ireland have different rules, and landlord law changes regularly (some areas covered here are under active reform). For anything that affects a real tenancy, check GOV.UK for the current position or speak to a solicitor or a body like the National Residential Landlords Association (NRLA).