Rental Property Tax Guide for UK Landlords
Being a landlord comes with a tax bill that has grown steadily more complex over the last decade - mortgage interest relief has been cut back, allowances have shrunk, and from 2027 rental income will be taxed at its own higher rates. This guide pulls the whole picture together in plain English: what you're taxed on, what you can claim, what changes are coming, and where the common traps are.
It's the hub of our landlord series of simple explainers, so think of it as your starting point. Where a topic deserves a deeper dive, we'll point you to a dedicated guide. If you also have self-employment income, our Essential Guide to Self-Assessment is a useful companion read.
📋 Table of Contents
💷 Is Your Rental Income Taxable?
In short, yes. Rental income is taxable, and you'll usually need to report it through Self-Assessment. A few thresholds to know:
There's a £1,000 property allowance. If your rental income is £1,000 or less in a tax year, it's tax-free, and you don't need to report it.
If your income is above £1,000, you must register for Self-Assessment (by 5 October following the tax year you first received the income) and declare it on the UK Property pages of your return.
Letting a room in your own home is different: the Rent-a-Room scheme lets you earn up to £7,500 a year tax-free (£3,750 if the income is shared).
Above £1,000, you have a choice: claim the £1,000 allowance and pay tax on the rest, or deduct your actual expenses. If your real costs are higher than £1,000 (which they usually are), deducting actual expenses saves you more.
🧾 Working Out Your Taxable Profit
Your taxable profit is your rental income minus your allowable expenses. Allowable expenses are the day-to-day running costs of letting the property, such as:
Letting agent and management fees
Landlord insurance
Repairs and maintenance (but not improvements)
Council tax, ground rent, service charges and utility bills where you pay them
Accountancy fees and mileage for property visits
Replacing domestic items like a broken cooker or sofa, on a like-for-like basis
What you can't claim as an expense includes capital improvements (an extension or a brand-new kitchen), the cost of buying the property, and your mortgage capital repayments. Mortgage interest is handled separately (see the next section).
If your expenses exceed your income in a year - say a long void period or a big repair - you make a rental loss, which is carried forward and set against future rental profits. It can't usually be set against your other income.
We go through every claimable cost in detail in our guide to what expenses landlords can claim.
🏦 Mortgage Interest and the Section 24 Rules
This is the change that has hit landlords hardest. Since April 2020, individual landlords can no longer deduct mortgage interest (or loan and arrangement fees) as an expense before working out profit. Instead, you get a 20% basic-rate tax credit on your finance costs.
For a basic-rate taxpayer, the effect is broadly neutral. For higher and additional-rate landlords, it's a real cost - you're taxed on a profit figure that includes the interest, and only get relief back at 20%. It's also why some landlords consider holding property through a company, where interest remains fully deductible (more on that below).
📈 How Rental Profit Is Taxed
Your rental profit is added to your other income and taxed at your marginal rate. For 2025/26 that means (after your £12,570 personal allowance):
20% on income within the basic-rate band (up to £50,270)
40% on income in the higher-rate band (£50,271 to £125,140)
45% above £125,140
🧮 Worked Example: David, a Higher-Rate Landlord
Annual rent: £15,000
Allowable expenses (excluding mortgage interest): £3,000
Mortgage interest: £5,000
His taxable profit is £15,000 - £3,000 = £12,000 (the interest isn't deducted). As a 40% taxpayer, the tax on that is £4,800, reduced by a 20% credit on his £5,000 interest (£1,000), leaving a bill of £3,800.
Under the old pre-2020 rules he could have deducted the interest, taxing a £7,000 profit at 40% for a £2,800 bill. So Section 24 costs David around £1,000 a year on the same property.
🔮 What's Changing: New Property Tax Rates from 2027
The Autumn Budget 2025 announced a significant change. From 6 April 2027, rental profits will be taxed at separate, higher property income tax rates - 2 percentage points above the standard bands:
22% property basic rate
42% property higher rate
47% property additional rate
The government's reasoning is that landlords don't pay National Insurance on rental income, so this narrows the gap with earned income. HMRC expects around 2.4 million landlords to pay more. As a rough guide, a basic-rate landlord with £10,000 of rental profit will pay about £200 more a year. The mortgage interest tax credit is also set to rise to 22% in line with the new property basic rate. Companies are not affected by these new rates.
It's still some way off, but it's worth factoring into any longer-term plans now.
💰 Capital Gains Tax When You Sell
When you sell a rental property for a profit, you'll usually pay Capital Gains Tax (CGT) on the gain. For 2025/26:
The rate is 18% where the gain falls within your basic-rate band, and 24% above it.
Each person has a £3,000 annual exempt amount - the first £3,000 of gains is tax-free.
You can deduct costs like the original purchase price, the SDLT you paid, legal and agent fees, and any capital improvements.
You must report and pay within 60 days of completion, using HMRC's UK Property CGT service. Missing this triggers automatic penalties.
If you ever lived in the property, Private Residence Relief may reduce the gain. We cover the detail in our Capital Gains Tax guide.
🏠 Stamp Duty When You Buy
Buying an additional property in England or Northern Ireland means paying standard Stamp Duty Land Tax (SDLT) plus a 5% surcharge on every band of the price (for properties of £40,000 or more). That surcharge rose from 3% to 5% on 31 October 2024. Companies buying residential property pay the surcharge too.
If you're buying in Scotland or Wales, different taxes apply (LBTT and LTT respectively) with their own surcharges, so check the rules for your area. SDLT is a big upfront cost, so it's worth modelling before you commit.
🏢 Personal Name or Limited Company?
Because Section 24 and the new 2027 rates only apply to individuals, some landlords hold property through a limited company (often an SPV), where mortgage interest stays fully deductible and profits are taxed via Corporation Tax instead.
It isn't automatically better. A company brings extra admin, still pays the SDLT surcharge, and you're taxed again when you take profits out. The right answer depends on your income, how long you'll hold, and your plans for the profits. We weigh it all up in our guide to owning rental property through a limited company.
👫 Jointly Owned Property
If you own a property with someone else, how the income is taxed depends on who beneficially owns it:
Married couples and civil partners are taxed 50:50 by default, even if ownership is unequal - unless you tell HMRC otherwise using a Form 17 declaration backed by evidence of the true split.
Other joint owners are taxed according to their actual share.
Splitting income with a lower-earning partner can be tax-efficient, and each owner uses their own allowances and rate bands. It's a common area for mistakes, so we cover it fully in our guide to jointly owned rental properties.
💻 Making Tax Digital for Landlords
From April 2026, landlords with qualifying income over £50,000 must keep digital records and send HMRC quarterly updates rather than one annual return, under Making Tax Digital for Income Tax. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. If that's you, it's worth getting ready early - our MTD for ITSA guide explains exactly what's involved.
⚠️ Common Mistakes to Avoid
Deducting mortgage interest as an expense. Since 2020 it's a 20% credit, not a deduction - getting this wrong overstates your relief.
Confusing repairs with improvements. Repairs are allowable; improvements are capital and only count against CGT when you sell.
Missing the 60-day CGT deadline. People sell, then forget to report until January. The penalties are automatic.
Assuming a 50:50 split with a spouse. Without a Form 17 based on real ownership, HMRC applies the default - which may not be what you want.
Overlooking the stamp duty surcharge when budgeting for a purchase. At 5% on the whole price, it's a substantial upfront cost.
💬 Frequently Asked Questions
Do I need to tell HMRC about rental income under £1,000? No. The £1,000 property allowance means income at or below that level is tax-free and doesn't need reporting. Above it, you must register for Self-Assessment.
Can I still deduct my mortgage payments? Not as an expense. You get a 20% tax credit on the interest element only - never on capital repayments.
How is a jointly owned property taxed? By beneficial ownership. Married couples and civil partners default to 50:50 unless they file a Form 17; other owners are taxed on their actual share.
When do I pay Capital Gains Tax on a sale? Within 60 days of completion, through HMRC's UK Property service - not on your annual return.
Is a limited company better for buy-to-let? Sometimes, especially for higher-rate taxpayers keeping profits in the business, but it isn't universally better once you factor in admin, SDLT and profit extraction. It's worth getting tailored advice.
💡 Key Takeaways
Rental income above the £1,000 property allowance is taxable and reported through Self-Assessment.
Taxable profit is income minus allowable expenses; mortgage interest is a 20% tax credit, not a deduction.
Profit is taxed at your marginal rate now, but separate property rates of 22/42/47% arrive in April 2027.
Selling means CGT at 18% or 24%, reported within 60 days; buying an extra property means a 5% stamp duty surcharge.
Ownership structure and how you split jointly owned income both make a real difference - and both reward planning.
📞 Need a Hand With Your Property Tax? Talk to ASBA Accounting
At ASBA Accounting, we look after landlords across Crawley and beyond - from getting your rental profits and expenses right on your tax return to planning ahead for the 2027 changes and deciding how best to hold your properties.
👉 Get in touch today or call us on 01293 525656 for friendly, straightforward advice.
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