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Tax on rental income in the UK: how it’s worked out, and what changes in April 2027

You pay Income Tax on the profit from letting, not on the rent. The profit is added to the rest of your income for the year, and the whole lot is taxed at your normal rates. That’s the entire principle, and almost everything people find confusing about landlord tax is a detail of one of those three steps.

This page is the overview. It walks through the calculation, the rates, how mortgage interest is treated, and the separate property income rates that arrive in April 2027, with two worked examples. Where a step has its own detail, there’s a link to the guide that covers it properly.

How tax on rental income is worked out

1. Start with the gross rent - everything the tenants paid in the tax year, before your letting agent took their fees. Not the amount that reached your bank.
2. Take off your allowable expenses - the agent’s fees, repairs, insurance, safety certificates, ground rent and so on. Or, if your costs were under £1,000, take off the £1,000 property allowance instead. It’s one or the other, never both. The allowable expenses guide has the full list.
3. Add the profit to your other income - salary, pension, self-employment - to find which rate band each slice of it falls in.
4. Work out the tax at your rates.
5. Take off 20% of your mortgage interest from the tax bill. Mortgage interest never comes off the profit; it buys a tax reduction instead. More on that below.

If you let more than one property, you don’t do this property by property. GOV.UK’s rule is that you work out the profit or loss for all of them “as if it’s a single business”, so a loss on one is set against profit on another in the same year.

The rates for 2026 to 2027

In England, Wales and Northern Ireland, with the standard personal allowance:

One trap above £100,000. The personal allowance shrinks by £1 for every £2 of income over £100,000, and is gone entirely at £125,140. Rental profit counts towards that £100,000, so if your total income lands in between, each extra £1,000 of rental profit costs you twice over: £400 in tax at 40%, plus it wipes out £500 of your personal allowance, which puts another £500 of income into tax at 40% - a further £200. That’s £600 of tax on £1,000 of profit, an effective rate of 60% on that slice.

Mortgage interest: a tax reduction, not an expense

Since 6 April 2020, mortgage interest on a residential let can’t be deducted from your rental profit at all. Instead, HMRC gives you a tax reduction worth 20% of the interest, taken off your tax bill at the end. The change is often called section 24, after the part of the Finance Act that brought it in.

For a basic rate taxpayer this works out much the same as the old deduction. For anyone whose rental profit reaches the higher rate band, it doesn’t: the profit is taxed at 40% but the interest is only relieved at 20%. The second worked example below shows the difference in pounds.

Only the interest counts, never the capital repayment. The figure comes from your lender’s annual interest certificate, and it goes in its own box on the tax return, well away from your other expenses - the Self Assessment property income guide covers which one.

Two worked examples

Both use the same invented property, let through an agent for the 2026 to 2027 tax year: gross rent of £12,000, the agent’s fees of £1,440 including VAT, repairs of £800, landlord insurance of £300, and mortgage interest of £5,000. Allowable expenses come to £2,540, so the rental profit is £9,460. Interest isn’t part of that sum.

A landlord earning £40,000 from work

Total income is £49,460, which is still inside the basic rate band, so the whole rental profit is taxed at 20%: £1,892. Take off the mortgage interest reduction, 20% of £5,000, which is £1,000. Tax on the rental: £892.

The same property, landlord earning £48,000

Now total income is £57,460. The first £2,270 of rental profit fills up the rest of the basic rate band at 20% (£454), and the other £7,190 is taxed at 40% (£2,876). That’s £3,330, less the same £1,000 interest reduction. Tax on the rental: £2,330.

Same property, same rent, same costs, and the second landlord pays £1,438 more, because the salary underneath pushed most of the rental profit into the higher band while the interest relief stayed at 20%. That gap is the whole reason section 24 is controversial, and it’s why the same rental can be worth very different amounts to two owners.

What changes from 6 April 2027

The November 2025 Budget announced separate Income Tax rates for property income, and GOV.UK’s technical note confirms they take effect from 6 April 2027:

• 22%, 42% and 47% - the property basic, higher and additional rates, two points above the rates on wages. They apply in England, Wales and Northern Ireland.
• The mortgage interest reduction rises to 22%, calculated at the new property basic rate.
• The order changes. The personal allowance and reliefs have to be set against your other income - wages, trading, pensions - before property income. Property income is taxed after those, but before savings and dividends.
• Unchanged: the £1,000 property allowance and the Rent a Room Scheme.

On the first example above, using today’s bands, the bill would go from £892 to £981.20: 22% of £9,460 is £2,081.20, less 22% of £5,000, which is £1,100. Thresholds can move between now and then, so treat that as an illustration of the mechanism rather than a forecast.

Do you need to tell HMRC?

The thresholds look at your rental income, and you only need to breach one:

• £1,000 or less, before expenses - covered by the property allowance. Usually nothing to report.
• £1,000 to £2,500 - contact HMRC. They may collect it through your tax code.
• Over £2,500 after expenses, or over £10,000 before them - a Self Assessment return. If you’ve not filed before, register by 5 October after the tax year ends.

The deadlines, the property allowance, and what goes in which box are all in the Self Assessment property income guide.

National Insurance

There’s no compulsory National Insurance on rental income. GOV.UK says you may be able to pay voluntary Class 2 contributions if your letting counts as a business - being a landlord is your main job, or you let more than one property - and voluntary Class 3 otherwise. The point of paying is your State Pension record, not the tax on your rent.

If a letting agent collects your rent

This is the step that’s easiest to get wrong. Your agent pays you a net amount: the rent, less their commission and the VAT on it, less whatever they paid out on your behalf. It’s the number on your bank statement and it’s easy to find, but it isn’t your rental income.

The tax return wants the gross rent as income and the fees and costs as expenses. Report the payout instead and you’ve understated both, and usually got the profit wrong as well, because a payout can also carry balances brought forward, money held back as a float, and money you paid in yourself. Every one of those numbers is printed on your statement; they just have to be pulled apart. How to read a letting-agent statement goes through it line by line, and the guide to letting agent fees covers what the agent charges for and how to check it.

Making Tax Digital

From April 2026, landlords and sole traders with qualifying income over £50,000 have to keep digital records and send HMRC quarterly updates, with the threshold falling to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is gross - rent before expenses - so a landlord can be in scope with a modest profit. It doesn’t change how the tax is calculated, and the 31 January return doesn’t go away. The guide to MTD for landlords with a letting agent covers what it asks for.

Questions people ask

Before you rely on any of this

This explains how rental income is taxed in general; it isn’t tax advice, and rates, bands and allowances change every year. The examples use invented figures and the standard personal allowance. Check GOV.UK’s guidance on paying tax on rental income and the technical note on the 2027 property rates, or ask an accountant.