Rental income tax for UK landlords: a plain-English guide

How rental profit is worked out

1. Add up all the rent you received in the tax year (6 April to 5 April), plus any other property income such as charges for services you provide.
2. Take off your allowable expenses, or take off the £1,000 property allowance instead. You can't do both.
3. What's left is your rental profit. It sits on top of your salary, pension or self-employed profit and is taxed at 20%, 40% or 45% depending on which band it lands in.
4. For a residential let, mortgage interest isn't taken off at step 2. Instead you get a tax credit worth 20% of it (see below).

If you own a property jointly, each owner works out tax on their own share of the income and costs.

Work out your rental income tax

The £1,000 property allowance or real expenses?

The property allowance lets you take £1,000 off your rental income instead of claiming actual costs. If your total property income is £1,000 or less, you usually don't need to tell HMRC about it at all.

• Each joint owner can use their own £1,000 allowance against their share.
• If you use the allowance, you can't claim any expenses for that income.
• You can't use the allowance and also get the mortgage interest credit in the same year.

As a rule of thumb, the allowance only wins when your real costs, including mortgage interest, come to less than £1,000. Most landlords with a mortgage, a letting agent or regular repairs are better off claiming expenses.

What counts as an allowable expense?

You can generally claim costs that are only for renting out the property, such as:

• letting agent and management fees, and legal fees for lets of a year or less
• repairs and maintenance that restore the property, like fixing a boiler or repainting between tenants
• buildings and contents insurance, ground rent and service charges
• council tax, utility bills and other services you pay for while you're the one paying them
• accountancy fees, phone calls, stationery and advertising for new tenants
• replacing furnishings, appliances and kitchenware you provide, on a like-for-like basis (not the first purchase)

Improvements that add value, such as an extension or turning a basic kitchen into a much better one, are capital costs. They aren't allowable expenses, but keep a record because they can reduce Capital Gains Tax when you sell.

Mortgage interest: the 20% tax credit

For residential lets, finance costs such as mortgage interest and loan arrangement fees aren't deducted from your rent. Instead your tax bill is reduced by 20% of those costs. The credit is 20% of the lowest of:

• your finance costs for the year (plus any unused amount carried forward from earlier years)
• your property profits for the year
• your total income above the personal allowance

Any finance costs that don't get relief because of those limits carry forward to the next year. Only the interest counts, not the capital part of your mortgage repayments. For commercial property, interest is deducted as an ordinary expense instead. The 20% credit applies across the UK, including in Scotland, even though Scottish income tax bands differ.

Worked example

A landlord in England has a £30,000 salary and one residential let:

• Rent received: £18,600
• Allowable expenses (agent, insurance, repairs and so on): £3,157.50
• Mortgage interest: £6,420

Claiming expenses: rental profit is £18,600 − £3,157.50 = £15,442.50. Added to the salary, total income is £45,442.50, which stays in the basic rate band, so the profit is taxed at 20%: £3,088.50. The mortgage interest credit is 20% × £6,420 = £1,284. Extra tax on the let: £3,088.50 − £1,284 = £1,804.50.

Using the £1,000 allowance: (£18,600 − £1,000) × 20% = £3,520, with no mortgage credit.

Claiming expenses saves £1,715.50 here. A higher rate taxpayer would pay 40% on the profit but still only get the 20% credit, which is why mortgage interest matters so much more at higher incomes.

Telling HMRC and Making Tax Digital

• Property income of £1,000 or less: usually nothing to report if the allowance covers it.
• Between £1,000 and £2,500 after expenses: contact HMRC, who may collect it through your tax code.
• Over £2,500 after expenses, or £10,000 before expenses: you need to file a Self Assessment tax return.

Making Tax Digital for Income Tax applies to landlords and sole traders based on their combined qualifying income (rental income plus self-employed turnover, before expenses). It started from 6 April 2026 for those over £50,000 in 2024-25, and drops to £30,000 (based on 2025-26) from April 2027 and £20,000 (based on 2026-27) from April 2028. It means keeping digital records and sending quarterly updates, so getting your records into a tidy sheet now will help.

From 2027-28 property income is due to be taxed at its own rates (22%, 42% and 47%), with the finance cost credit rising to 22%. The figures on this page are for 2026-27.

Keep every property in one sheet

The UK Landlord Rental Income & Expenses Tracker from Tidy Sheets logs rent and costs for up to five properties, handles joint ownership, works out the 20% mortgage interest credit with carry-forward, and compares the property allowance against your real expenses. It's coming to the shop soon. In the meantime, the free rental income tax calculator runs the same maths in your browser.

Visit the shop

Self-employed as well? Read the tax set-aside guide or try the HMRC mileage allowance calculator.

Official sources

Work out your rental income (GOV.UK)
Property and trading allowances (GOV.UK)
Tax relief for residential landlords (GOV.UK)
Renting out a property: paying tax (GOV.UK)
Making Tax Digital for Income Tax (GOV.UK)
Income tax rates and bands (GOV.UK)
Scottish income tax allowances and reliefs (mygov.scot)

Checked 16 October 2026. Rules for companies, non-resident landlords, rent-a-room and furnished holiday lets are outside this page's scope.