How Is Rental Income Taxed in the UK?
Understanding how HMRC taxes your rental income is critical if you’re letting out property in the UK. The amount of Tax on rental income you pay depends not just on the rental income itself, but on your total income, including any earnings from employment, self-employment, pensions, or dividends.
In the UK, Tax on rental income is under the Income Tax system — meaning it is subject to the same tax bands and rates as any other income. However, there are special considerations for landlords, such as allowable deductions, which can significantly reduce your taxable profits.
Let’s break down the current rules for the 2025/26 tax year.
Income Tax Bands and Rates (2025/26)
| Band | Taxable Income (£) | Tax Rate |
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
How Rental Income Fits Into These Bands
Your Tax on rental income is added to any other sources of income to determine your total tax liability. For example:
- If you earn £30,000 from employment and £10,000 in rental profit, your total income is £40,000.
- After your personal allowance (£12,570), you’ll pay 20% tax on the remaining £27,430.
If rental profits push your income above £50,270, a portion will be taxed at 40%, and so on.
What If You Have No Other Income?
If your only income is rental profit:
- The first £12,570 is tax-free (personal allowance)
- The next £37,700 (to reach £50,270) is taxed at 20%
- Income above £50,270 is taxed at 40%, and above £125,140 at 45%
This is important for retired landlords or those living off property income only — they may benefit from paying lower tax rates overall.
Non-Resident Landlords
Even if you live abroad, you are still liable to pay UK tax on your UK rental income. You may need to register with the Non-Resident Landlord Scheme, and your letting agent or tenant might be legally required to deduct basic rate tax before paying you rent.
The Taxcom can assist non-resident landlords with registration, declaration, and full tax compliance to avoid overpayment or penalties.
What Expenses Can Landlords Deduct from Rental Income?
When calculating how much Tax on rental income you owe, it’s essential to remember: you are only taxed on your profits, not the gross rent received. That means you can deduct certain allowable expenses from your rental income to reduce your taxable amount.
Understanding what you can and cannot claim is crucial for staying compliant with HMRC while minimising your tax bill. At The Taxcom, we advise landlords daily on how to legally optimise deductions and ensure accurate record-keeping.
Common Allowable Expenses
Here’s a breakdown of the most common expenses that can be deducted from rental income:
| Expense Type | Explanation |
| Letting agent fees | Including management fees, tenant-finding services, and inventory preparation |
| Maintenance and repairs | Necessary upkeep of the property (e.g. boiler repairs, roof maintenance) |
| Buildings and contents insurance | Landlord insurance policies to cover property damage or liability |
| Council tax and utility bills | If the landlord pays these instead of the tenant |
| Ground rent and service charges | For leasehold properties |
| Legal and professional fees | For accountancy services, eviction processes, or tenancy agreements |
| Travel expenses | If you use your vehicle for managing or inspecting the property |
| Advertising costs | For listing the property and attracting tenants |
| Wages for staff | If you employ someone to manage or maintain the property |
| Stationery and phone calls | For business-related administrative expenses |
All expenses must be wholly and exclusively for the purpose of renting out the property to be deductible.
Capital vs Revenue Expenditure
Not all costs are immediately deductible.
- Revenue expenses: Ongoing costs like repairs, insurance, and management fees. These are deductible in the year they’re incurred.
- Capital expenses: Improvements that increase the property’s value. These are not deductible from rental profits, but may reduce Capital Gains Tax (CGT) when you sell.
Understanding the difference is vital to avoid HMRC penalties or inflated Tax on rental income. The Taxcom can help clarify borderline cases and ensure expenses are classified correctly.
Mortgage Interest and Finance Costs
Since the phased removal of full mortgage interest relief (which ended in April 2020), landlords can no longer deduct their entire mortgage interest as an expense. Instead, you now receive a 20% basic rate tax credit on finance costs.
Eligible finance costs include:
- Mortgage interest on buy-to-let properties
- Interest on loans used to buy furnishings
- Fees associated with property finance arrangements
The restriction applies only to individual landlords, not to limited companies (who can still claim full interest as a business expense).
What Records Should You Keep?
You must retain full records of:
- Invoices and receipts
- Tenancy agreements
- Bank statements and rent schedules
- Proof of payments for services and maintenance
- Vehicle mileage logs