Tax on rental income: how much will you pay?

Overview

Rental profit is added to your other income and taxed at your own income tax rate, with a tax credit at the basic rate on mortgage interest instead of a deduction. The more you earn, the more of the profit goes in tax, and you pay it through a Self Assessment return by 31 January. To show the numbers, this guide follows one example, a £180,000 house let for £1,100 a month, set out below.

Key points

• If you own a rental in your own name, the profit is taxed from 20%, at whatever rate your other income takes it to.
• The profit is the rent less running costs. Mortgage interest isn't taken off; you get a tax creditTax credit for mortgage interestThe 20% of your mortgage interest and fees that comes off your income tax bill under Section 24. It's worked out on the interest, the profit or the income above your personal allowance, whichever is smallest, and any left over carries forward. of 20% of it instead.
• On the example the tax is £744 a year for a basic-rate taxpayer and £2,839 for a higher-rate one.
• From 6 April 2027 rental profit gets its own rates, four points higher.
• You pay it through a Self Assessment tax return, by 31 January after the tax year ends.

What is taxed on rental income?

You're taxed on the profit, which is the rent you receive less the costs of letting, such as a letting agent, repairs and insurance. It counts as part of your income for the tax year, which runs from 6 April to 5 April. All the homes you let in the UK count as one business, so a loss on one comes off the profit on another, and a loss for the whole year carries forward to the next.

Four things catch people out:

• Mortgage interest isn't a cost. You get a credit of 20% of it off your tax bill instead (Section 24). Mortgage fees work the same way.
• Paying off the loan isn't a cost at all. On a repayment mortgageRepayment mortgageEach payment covers the interest and some of the loan (the principal), so it's cleared by the end of the term. Payment = P × r(1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with P the loan, r the monthly rate and n the number of payments., only the interest part earns the credit. Interest-only or repayment? shows what that does to your cash.
• Buying costs and improvements aren't costs against the rent. Stamp dutyStamp dutyThe tax on buying a home in England (Stamp Duty Land Tax): 0% up to £125,000, 2% to £250,000, 5% to £925,000, 10% to £1.5 million and 12% above, each rate on the part of the price in its band. A buy-to-let or second home pays 5% more in every band, and buyers who don't live in the UK pay 2% more., the legal fees for buying, and work that adds to the house count only when you sell, against capital gains tax.
• The profit sits on top of your other income. Your salary or pension uses up your personal allowance and lower bands first, so the profit is taxed at your highest rate.

Allowable expenses for landlords lists what you can and can't take off.

Can you deduct mortgage interest from rental income?

Not if you own the property in your own name. Since April 2020, mortgage interest can't be taken off the rent. You get a tax credit of 20% of the interest instead, which comes off your tax bill. For a basic-rate taxpayer that works out about the same; for a higher-rate taxpayer it costs more. A limited companyLimited company buy-to-let (SPV)Owning through a company of your own, often a 'special purpose vehicle' set up only to hold property. The company pays corporation tax on the profit and deducts mortgage interest in full; you pay dividend tax on what you take out. It pays the higher rates of stamp duty or Land Transaction Tax. still deducts the interest in full. Section 24 explains how the credit works and who it costs most.

How much tax do you pay on rental income?

You pay income tax at your own rate on the rental profit, less a 20% credit on the mortgage interest. Tax on the example comes to £744 a year for a basic-rate taxpayer and £2,839 for a higher-rate one. Here's the working for the basic-rate owner:

Rent a year	£13,200
2 empty weeks	−£508
Letting agent	−£1,320
Repairs	−£660
Insurance	−£240
Profit taxed (interest not taken off)	£10,472
Income tax on the profit	£2,094
Less 20% of the £6,750 interest	−£1,350
Tax to pay	£744

The deal leaves £3,722 a year in cash after the mortgage and every cost. After tax, that's £2,978.

How does your other income change the tax?

It decides which band the profit lands in. There are three, and these are the income tax rates for rental profit: 20%, 40%, 45%. The table shows the same deal owned by people with different salaries, and the profit taxed, £10,472, is the same each time, as is the credit.

• £45,000: the profit takes total income past £50,270, where the higher rate starts, so part of it is taxed at 40%.
• £100,000: each pound of profit costs 60p in tax, because at this income the personal allowance shrinks as the profit is added. The tax is more than the deal makes in cash, so owning it costs this landlord £1,211 a year.
• £150,000: the personal allowance has gone, and all the profit sits above £125,140, where the additional rate starts, so it's all taxed at 45%.

The allowance shrinks by £1 for every £2 of income between £100,000 and £125,140, and above that it has gone. Because the interest isn't taken off, the higher your rate, the more of the cash goes in tax. That's why the same deal can suit one landlord and not another.

What changes for rental income on 6 April 2027?

Rental profit gets its own rates, four points above the rates on other income, and the credit rises to 22%. The calculator switches to these rates by itself from that date. On the same deal:

Rates on rental profit	24%, 44%, 49%
Tax, £30,000 earner	£1,028
Tax, £60,000 earner	£3,123

How much rental income is tax-free?

The first £1,000 of rent a year is tax-free under the property allowance. Above that, rental profit is tax-free only while it fits inside your personal allowance of £12,570, which your salary or pension usually uses up first.

So someone with no other income could make up to £12,570 of rental profit a year with no tax to pay. For most landlords, whose job or pension already uses the allowance, every pound of profit is taxed.

The property allowance

If your rent is small, there's a simpler route. When £1,000 a year or less is all the rent you get, you don't need to tell HMRC at all. Above that, you can take £1,000 off the rent instead of your actual costs.

It rarely suits a buy-to-let with a mortgage. It replaces every cost, and you can't claim it alongside the credit on mortgage interest. On the example it would make the basic-rate landlord's tax £2,338 instead of £744. It's meant for small amounts of rent with few costs, like letting out a parking space. Allowable expenses for landlords works it through.

Letting a furnished room in the home you live in is different again. The first £7,500 a year is tax-free under the rent a room schemeRent a room schemeUp to £7,500 a year from a lodger in your own home is tax-free, or £3,750 if someone else also takes rent from the same home. It doesn't cover letting a separate flat..

How do you tell HMRC and pay?

• Rent over £1,000 a year: you need to tell HMRC. Up to £2,500, contacting them is enough. Above £2,500 of profit, or £10,000 of rent before costs, you need a Self Assessment tax return.
• Register by 5 October after the end of the first tax year you let, if you don't already send a return.
• File online and pay by 31 January. For this tax year, 6 April 2026 to 5 April 2027, that's 31 January 2028.
• Payments on account. If last year's bill was £1,000 or more, and less than 80% of your tax was taken through your pay, you also pay towards next year's bill, half of last year's on 31 January and half on 31 July. In your first year of letting this can mean paying a year and a half's tax in one January, so put money aside.
• Making Tax Digital. Landlords whose rent plus any self-employed income is over a threshold now keep digital records and send HMRC an update every three months. Making Tax Digital for landlords explains who and when.

Keep records of every rent payment and cost, with receipts and bank statements, for at least five years after the 31 January deadline.

Do you need to declare rental income if you make no profit?

Often, yes. The £1,000 limit is on the rent you receive, not your profit. If you get more than that, tell HMRC even when costs wipe out the profit, and with more than £10,000 of rent before costs you need a tax return whatever the profit. A loss is worth declaring anyway: it carries forward and comes off next year's rental profit.

How can you avoid paying tax on rental income?

If letting makes a profit, you can't avoid the tax altogether, but you can make sure you pay no more than you owe. Claim every allowable cost, think about who owns the property and how, and use your pension. Be wary of schemes sold as making rent tax-free. They usually fail, and HMRC looks out for them.

• Claim every allowable cost. Each £1,000 of costs you don't claim means £200 more tax for a basic-rate taxpayer and £400 for a higher-rate one.
• Own with a partner who pays less tax. The profit is usually split by who owns the property, so a partner on a lower rate pays less on their share. Changing who owns a property has legal and tax steps of its own, and the deal check doesn't split a deal between two owners yet.
• Pay into a pension. Personal pension contributions widen your basic rate band and can bring back some personal allowance above £100,000. The deal check doesn't include them.
• Borrow less, or buy through a company. Interest only earns a 20% credit in your own name; a company takes it off in full. See Limited company or your own name?

Common questions

Figures from our calculator, on the rules in force today, checked against GOV.UK and the Welsh Revenue Authority on 31 October 2026. Not financial or tax advice: check your own case with an accountant.