Renting out a property in the UK is a common route to a second income, but it comes with tax responsibilities that catch many new landlords off guard. The money you receive in rent is not simply yours to keep — it is taxable, and it must be declared to HMRC in the proper way. Get your Self Assessment in order and claim the right deductions, and you will keep more of what you earn while staying on the right side of the rules. Miss the deadlines or overlook income, and the penalties can mount quickly.
None of this requires an accounting degree. The system is essentially: add up your rental income, subtract the expenses that HMRC allows, and pay tax on the profit at your usual marginal rate — with a few quirks, notably around mortgage interest, that it is worth understanding from the start. Let us walk through how it all fits together.
What counts as rental income
Rental income is any money you receive from letting out a property. In practice that includes:
- Monthly or weekly rent from tenants
- Payments for services you provide, such as cleaning or laundry
- Non-refundable deposits that you keep
- Rent paid by a local council or housing association
You must declare all of this to HMRC, even if the property is only let for part of the year or you make a loss on it. The system is unforgiving of omissions — failing to declare rental income can result in penalties and interest, so it is safer to declare everything and let the allowances do their work.
How to declare rental income
Rental income is reported through a Self Assessment tax return. If you already file one for other reasons — self-employment, investment income, a capital gain — you simply add your property details to the property section rather than registering afresh.
If you are not yet registered
You must register for Self Assessment if you receive rental income and either:
- Your total rental income exceeds £2,500 after allowable expenses, or
- HMRC has written to you requiring a return
You can register online at gov.uk/self-assessment-tax-returns. You will receive a Unique Taxpayer Reference (UTR) number within 10 working days, and you file your first return by 31 January following the end of the tax year, which runs from 6 April to 5 April.
Key deadlines
| Deadline | What It Is |
|---|---|
| 5 October | Register for Self Assessment (new landlords) |
| 31 January | File online and pay any tax owed for the previous tax year |
| 31 July | Second payment on account (if applicable) |
The registration deadline matters: if you miss the 5 October in the tax year you start letting, you can incur a late-filing penalty even if you end up owing nothing.
How rental income is taxed
There is no separate “rental tax” in the UK. Your property income is added to your other income — salary, pension, investments — and the total is taxed in bands at your marginal rate. The bands for 2025/26 are:
| Tax Band | Rate (2025/26) |
|---|---|
| Personal Allowance (£0–£12,570) | 0% |
| Basic Rate (£12,571–£50,270) | 20% |
| Higher Rate (£50,271–£125,140) | 40% |
| Additional Rate (over £125,140) | 45% |
This means the tax you pay on your rent depends on the rest of your income. Take someone earning £60,000 from employment who receives £10,000 in net rental income: their total of £70,000 pushes part of the rental profit into the 40% band, so more of it is taxed at the higher rate than if they had no job at all.
Allowable deductions
Before the tax is calculated, you may subtract the legitimate expenses of running the property, which lowers your taxable profit. The commonly usable ones include:
| Expense | Deductible? |
|---|---|
| Letting agent or management fees | Yes |
| Landlord insurance (buildings, liability, rent guarantee) | Yes |
| Repairs and maintenance (not improvements) | Yes |
| Ground rent and service charges | Yes |
| Accountant fees for preparing your tax return | Yes |
| Legal fees for drafting tenancy agreements | Yes |
| Utility bills paid by you | Yes |
| Advertising for tenants | Yes |
| Council tax during void periods | Yes |
Just as important is what you cannot deduct:
- Mortgage capital repayments
- Personal expenses (your own council tax if you live elsewhere)
- Improvements or upgrades, which HMRC treats as capital rather than revenue
The repairs-versus-improvements line trips many landlords up. Fixing a burst pipe is a repair and is deductible; extending a kitchen or replacing a roof with something better is an improvement and is not. If in doubt, it is worth getting the position checked with an accountant.
Section 24: mortgage interest relief
Since April 2020, the way mortgage interest is treated has changed, and it is the single most important recent shift for landlords. You can no longer deduct mortgage interest from your rental income. Instead, HMRC gives you a 20% tax credit on the interest element of your mortgage payments. This is Section 24 of the Finance (No. 2) Act 2015.
How it works
Before Section 24, a higher-rate taxpayer paying £6,000 a year in mortgage interest could deduct it from rental income, saving £2,400 in tax (40% of £6,000). Under the new rules they receive the flat 20% credit, worth only £1,200. The difference is real: higher-rate taxpayers now pay more tax on the same rental income.
Who is most affected
The change bites hardest on:
- Higher-rate (40%) and additional-rate (45%) taxpayers
- Landlords with large mortgages relative to their rent
- Landlords with multiple properties
A worked example
Sarah owns a flat and lets it out for £1,500 per month.
Annual rental income: £1,500 × 12 = £18,000
Allowable deductions:
| Expense | Amount |
|---|---|
| Letting agent fees | £500 |
| Maintenance and repairs | £300 |
| Insurance | £200 |
| Total deductions | £1,000 |
Net rental income: £18,000 – £1,000 = £17,000
Sarah also earns £50,000 from her job, which makes her a 40% taxpayer.
Tax on rental income: £17,000 × 40% = £6,800
Her mortgage interest is £4,000 per year. Under Section 24 she receives a 20% tax credit: £4,000 × 20% = £800
Net tax on rental income: £6,800 – £800 = £6,000
Without Section 24, she could have deducted the £4,000 mortgage interest directly, paying tax on £13,000 at 40% = £5,200. The change costs her an extra £800 per year. This is why higher-rate landlords with meaningful borrowing often run the numbers carefully, and why some choose to incorporate as a limited company — an option that dodges Section 24 but brings its own costs and complications.
Practical points for landlords
A few habits make the whole process smoother and cheaper:
- Keep records of all income and expenses. HMRC can go back up to six years for undeclared income, so a spreadsheet or landlord accounting software is worth setting up from day one.
- Use an accountant. A tax adviser familiar with property income can help you claim everything you are entitled to and avoid mistakes.
- Understand the Section 24 impact. If you are a higher-rate taxpayer, run the numbers before relying on mortgage-heavy profitability.
- Declare all rental income. Even short-term lets, lodgers and rent from rooms must be declared. Note that the Rent a Room Scheme offers a £7,500 threshold if you rent a furnished room in your own home.
- Check your tax code. With multiple income sources, make sure HMRC has the right code to avoid under- or overpaying tax through your job.
Useful resources
- HMRC Property Income Guide
- Section 24 Guidance
- Self Assessment Registration
- MoneyHelper Landlord Tax Guide
A closing thought
Landlord taxation is not glamorous, but it is manageable once the structure is clear: declare your income, claim the deductions you are entitled to, understand how mortgage interest is handled, and keep tidy records. The landlords who come unstuck are almost always the ones who put it off or under-declare, not the ones who spent an afternoon getting organised. Sort the paperwork early, perhaps with professional help, and renting out a property becomes a far less stressful source of income.