If you let out a property in the UK, the income you receive is taxable. Understanding how rental income tax works helps you plan ahead, claim the right deductions, and avoid penalties from HMRC.
What Is Rental Income?
Rental income is money you receive from letting out a property. It includes:
- Monthly or weekly rent from tenants
- Payments for services you provide (cleaning, laundry, etc.)
- Non-refundable deposits that you keep
- Rent paid by a local council or housing association
You must declare all rental income to HMRC, even if the property is only let for part of the year or you make a loss. Failing to declare rental income can result in penalties and interest.
How to Declare Rental Income
You declare rental income through a Self Assessment tax return. If you already file a return for other reasons (self-employment, investment income), you add your property income to the property section.
If You Are Not Yet Registered
You must register for Self Assessment if you receive rental income and:
- Your total rental income exceeds £2,500 after allowable expenses, or
- HMRC has written to you requiring a return
Register online at gov.uk/self-assessment-tax-returns. You will receive a Unique Taxpayer Reference (UTR) number within 10 working days. File your first return by 31 January following the end of the tax year (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) |
How Rental Income Is Taxed
Rental income is taxed at your marginal rate. There is no separate “rental tax” — your property income is added to your other income (salary, pension, investments) and taxed in bands:
| 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% |
If you earn £60,000 from employment and receive £10,000 in net rental income, your total income of £70,000 means part of your rental income is taxed at 40%.
Allowable Deductions
You can deduct legitimate expenses from your rental income before calculating tax. This reduces your taxable profit.
Common Deductions
| 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 |
What You Cannot Deduct
- Mortgage capital repayments
- Personal expenses (your own council tax if you live elsewhere)
- Improvements or upgrades (these are capital, not revenue)
Section 24: Mortgage Interest Relief
Since April 2020, 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 known as Section 24 of the Finance (No. 2) Act 2015.
How It Works
Before Section 24, a 40% taxpayer paying £6,000 in mortgage interest could deduct it from rental income, saving £2,400 in tax. Now, they get a flat 20% credit, saving only £1,200. The difference means higher-rate taxpayers pay more tax on the same rental income.
Who Is Most Affected
- Higher-rate (40%) and additional-rate (45%) taxpayers
- Landlords with large mortgages relative to rent
- Landlords with multiple properties
Worked Example
Sarah owns a flat and lets it out for £1,500 per month.
Annual rental income: £1,500 x 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, making her a 40% taxpayer.
Tax on rental income: £17,000 x 40% = £6,800
Her mortgage interest is £4,000 per year. Under Section 24, she receives a 20% tax credit: £4,000 x 20% = £800
Net tax on rental income: £6,800 – £800 = £6,000
Without Section 24, Sarah could have deducted the £4,000 mortgage interest directly, paying tax on £13,000 at 40% = £5,200. The change costs her an additional £800 per year.
Tips for Landlords
- Keep records of all income and expenses. HMRC can go back up to 6 years for undeclared income. Use a spreadsheet or landlord accounting software.
- Use an accountant. A tax advisor familiar with property income can help you claim everything you are entitled to and avoid mistakes.
- Understand Section 24 impact. If you are a higher-rate taxpayer, run the numbers carefully. Some landlords incorporate as a limited company to avoid Section 24, though this brings other costs and complications.
- Declare all rental income. Even short-term lets, lodgers, and rent from rooms must be declared. The Rent a Room Scheme offers a £7,500 threshold if you rent a furnished room in your own home.
- Check your tax code. If you have multiple income sources, make sure HMRC has the right tax code to avoid under- or overpayment.