Tax on rental income: how it works and what you can claim

Do I have to pay tax on rental income?

Yes, if you make a profit. GOV.UK says: You or your company must pay tax on the profit you make from renting out the property, after deductions for ‘allowable expenses’.

Small amounts are tax-free. The first £1,000 of your income from property rental is tax-free. This is your ‘property allowance’.

Do I need to declare rental income to HMRC?

Yes, once your rent is over £1,000 a year. What you do depends on how much it is:

• Up to £1,000: nothing to tell HMRC about it.
• Over £1,000, up to £2,500: contact HMRC.
• Over £2,500 after expenses, or £10,000 before them: you need a Self Assessment tax return.

GOV.UK: Contact HM Revenue and Customs (HMRC) if your income from property rental is more than £1,000 a year, up to £2,500. You must report it on a Self Assessment tax return if it’s more than: £2,500 after allowable expenses or £10,000 before allowable expenses.

Do I need to register for Self Assessment as a landlord?

Yes, if you need a tax return and do not already send one. Register by 5 October after the end of the tax year you first had the rental income. GOV.UK: If you do not usually send a tax return, you need to register by 5 October following the tax year you had rental income.

The landlord tax return is your normal Self Assessment return, with the rental figures in its property section. These are the dates to know:

GOV.UK, for the return now due: You must submit your online tax return by 11:59pm on 31 January 2027 or you’ll get a late filing penalty.

How is tax on rental income worked out?

You take your expenses off your rent, add the profit to your other income and pay tax on it. Step by step:

1. Add up all the rent you received. Across every property you let, for the tax year (6 April to 5 April).
2. Take off your allowable expenses. Or the property allowance instead, if that gives you more. You cannot have both.
3. What is left is your rental profit. It is added to your wages, pension or other income for the year.
4. Work out the tax on that profit. At your Income Tax rate, which depends on your total income.
5. Take off the mortgage interest credit. 20% of your finance costs, in most cases (set to be 24% from April 2027). What is left is the tax you owe on your rent.

If you let more than one property, they count as one business. If you rent out more than one property, the profits and losses from those properties are added together to arrive at one figure of profit or loss for your property business.

What tax rate do I pay on rental income?

In the 2026 to 2027 tax year, the same rate as the rest of your income. Your rental profit sits on top of your wages or pension, so it can push part of your income into a higher band. The rate of tax you pay depends on your total income for the year, from employment, self-employment or pensions and any allowances you can claim.

GOV.UK: Income tax bands are different if you live in Scotland.

From 6 April 2027 it is set to be 24%, 44% and 49% instead: what changes in 2027.

What expenses can landlords claim?

The day-to-day costs of running the let. GOV.UK’s list:

• Letting agents’ fees
• Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
• Accountants’ fees
• Buildings and contents insurance
• Maintenance and repairs to the property (but not improvements)
• Utility bills, like gas, water and electricity
• Rent, ground rent, service charges
• Council Tax
• Services you pay for, like cleaning or gardening
• Other direct costs of letting the property, like phone calls, stationery and advertising

Source: GOV.UK, renting out your property: paying tax.

Landlords in England with tenants on an assured or regulated tenancy also pay a yearly fee per property to the government’s new landlord register, and the government says that fee is tax deductible: how the landlord register fee works.

You cannot claim the cost of buying the property or improving it. Allowable expenses do not include ‘capital expenditure’ - like buying a property or renovating it beyond repairs for wear and tear. Repairs are fine. GOV.UK: A repair restores an asset to its original condition, sometimes by replacing parts of it.

GOV.UK gives these as improvements you cannot claim: adding an extension, installing a security system if there was not one before and replacing a kitchen with one of a higher specification. Keep the receipts anyway: Capital expenses are not allowable and cannot be claimed against your rental income but you should keep records of them as you might be able to set them against Capital Gains Tax if you sell the property in the future.

Can I claim mortgage interest on a rental property?

Not as an expense, if you own the property yourself. You get a tax credit instead. If you’re a company paying Corporation Tax, you can claim interest on property loans as an allowable expense. You cannot do this if you’re an individual landlord who pays Income Tax.

From 6 April 2020 Income Tax relief on all residential property finance costs is restricted to the basic rate of Income Tax. That covers mortgage and loan interest, and also fees and any other incidental costs for getting or repaying mortgages and loans. Only the interest counts, never the part of a repayment mortgage that pays off the loan.

The credit is 20% of whichever of these is lowest:

• Your finance costs for the year, plus any brought forward
• Your property profits
• Your income above your Personal Allowance

Source: GOV.UK: The reduction is the basic rate value (currently 20%) of the lower of: finance costs, property business profits, or adjusted total income.

For most landlords that is simply 20% of the interest. If your profit is lower than your interest, the unused interest is not lost: it carries forward to next year. The tax reduction can’t be used to create a tax refund.

Basic rate taxpayers end up roughly where they would have been if the interest were an expense. Higher rate taxpayers pay more, because the credit is only at the basic rate (20% now, set to be 24% from April 2027). As GOV.UK puts it: All residential landlords with finance costs are affected, but only some will pay more tax.

GOV.UK on unused interest: If the basic rate tax reduction is calculated using the ‘property business profits’ or ‘adjusted total income’ then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years.

Can I claim for replacing furniture and appliances?

Yes, when you replace something, not when you first buy it. You may be able to claim tax relief on money spent on replacing a ‘domestic item’. This is called ‘replacement of domestic items relief’. It covers:

• Movable furniture for example beds, free-standing wardrobes
• Furnishings for example curtains, linens, carpets, floor coverings
• Household appliances for example televisions, fridges, freezers
• Kitchenware for example crockery, cutlery

Source: GOV.UK, work out your rental income. You cannot claim it for the initial cost of buying domestic items for a dwelling house.

You must have only bought the domestic item for use by tenants in a residential property and the item you replaced must no longer be used in that property.

If the new item is better than the old one, you claim only what a like for like replacement would have cost. GOV.UK’s example: if a new sofa costs £400 but a sofa bed costs £550, you can only claim the £400 as a deduction and no relief is available for the £150.

How much tax will I pay on rental income? A worked example

A landlord earning £30,000 from a job lets one flat in England for £12,000 a year. After costs their rental profit is £9,200, and the tax on it is £880 once the mortgage interest credit comes off.

Their wages already use the Personal Allowance, so the whole profit is taxed at the basic rate of 20%. The mortgage interest for the year is £4,800.

The interest credit is worked out on £4,800 because that is the lowest of the three figures: the interest (£4,800), the profit (£9,200) and their income above the Personal Allowance (£26,630).

Claiming the £1,000 property allowance instead would cost them more. The taxable profit would be £11,000, the tax £2,200, and there would be no interest credit, because GOV.UK says you cannot use the allowance if you claim the tax reducer for finance costs such as mortgage interest for a residential property.

To work out your own figures, use our rental income tax calculator. GOV.UK also has a Self Assessment tax calculator.

How can I pay less tax on rental income, legally?

By claiming every relief you are entitled to. You cannot avoid tax on a rental profit, but you can make sure you only pay on the true profit:

• Claim every allowable expense. Agent fees, insurance, repairs, and the smaller costs like phone calls and advertising all count.
• Use the property allowance if your costs are small. If you claim the property allowance you cannot claim a deduction for your expenses. So compare the two each year. If your expenses are more than your income it may be beneficial to claim expenses instead of the allowances.
• Claim the mortgage interest credit. Put the interest on your return, so the credit is worked out.
• Claim for replacing furnishings, under replacement of domestic items relief.
• Carry losses forward. Normally you can only offset that loss against any profits that arise from the same rental business in future years.
• Use Rent a Room if you let a room in your own home. The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home.

If you have rental income you never declared, telling HMRC yourself is the cheaper route. You can declare unpaid tax by telling HMRC about rental income from previous years. If you have to pay a penalty it’ll be lower than if HMRC find out about the income themselves.

How is rental income taxed if I own the property jointly?

Each owner pays tax on their own share. You can share ownership of rental property with other people and the amount of rental income on which you will pay tax will depend on your share of the property.

• Married couples and civil partners: Property jointly owned by married couples and civil partners who live together will usually be taxed in equal shares. If you own the property in unequal shares and are entitled to the income in the same unequal shares, the income can be taxed on that basis. You both need to declare beneficial interests in joint property and income.
• Anyone else: If you own a property jointly with another person who is not your spouse or civil partner your share of the rental profits or losses will usually be based on the share of the property you own, unless you agree a different allocation.

Each of you also gets your own allowance. If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.

What records does a landlord need to keep?

A record of every rent payment and every cost, with the paperwork behind it. You’ll have to keep accurate records of rent received and your expenses incurred to work out the profit you’ll pay tax on. GOV.UK suggests:

• Rent books
• Receipts
• Invoices
• Bank statements
• Mileage logs (for journeys that are solely for your property business purposes)

Source: GOV.UK, work out your rental income, which adds: Your records must separate your income from fully-furnished lettings and unfurnished or part-furnished lettings.

You must keep your records for at least 5 years after the 31 January tax return deadline for each tax year. HMRC can charge you a penalty if your records are not accurate, complete and readable or if you do not keep them for the required period of time.

How long to keep business records

Is tax on rental income changing in 2027?

Yes. From 6 April 2027 rental profit is set to be taxed at 24%, 44% and 49%, 4 points above the rates on wages, pensions and self-employed profits. The law as passed already sets separate property rates of 22%, 42% and 47% from that date. The Budget on 28 October 2026 announced 24%, 44% and 49% in place of them, to be legislated in Finance Bill 2026-27, so rental profit will be taxed above the normal rates either way. The rates are set for England, Wales and Northern Ireland, and the Scottish and Welsh governments can set their own property rates.

The mortgage interest credit is set to rise to 24% with them, in line with the property basic rate. The rates do not change for the 2026 to 2027 tax year: For tax year 2026 to 2027, property income is charged at the main rates of income tax.

On the same figures in 2027 to 2028, the landlord in our worked example would pay £1,056 on the announced rates, instead of £880. If you are also self-employed, see what Budget 2026 changes for builders, trades and sole traders.

Source: GOV.UK, Budget 2026: From 2027 to 2028, the property basic rate will be 24%, the property higher rate will be 44%, and the property additional rate will be 49%. These rates will apply across England, Wales and Northern Ireland. The government has provided the devolved governments of Scotland and Wales with the ability to set property income rates in line with their current Income Tax powers. The credit: HM Treasury, Budget 2026 policy costings, page 74.

Making Tax Digital is changing how landlords report, too. If your income from property and self-employment was over £50,000 in the 2024 to 2025 tax year, you should have started from 6 April 2026; over £30,000 in 2025 to 2026, you start from 6 April 2027. That means digital records and an update to HMRC every three months. If you must start from 6 April 2027, a late quarterly update in your first year, 2027 to 2028, gets no penalty point, though you still have to send them (a plan, could change). Making Tax Digital for landlords

Letting agents and deposit schemes already report landlords' rent to HMRC once a year. HMRC is consulting, until 20 January 2027, on making that monthly or quarterly, and there is no start date (a plan, could change).