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The amount of tax on rental income you pay depends largely on your taxable income, the profit you earn from letting out a rental property, and your overall employment status. But it does not stop there.
In this updated 2025/26 guide, we break down the types of taxes landlords may face, how to calculate your rental income, when to submit your Self Assessment tax return, and what allowable expenses can be claimed to reduce your bill.
What Constitutes Rental Income?
Rental income refers to any earnings you receive from allowing a tenant to use your property, whether it is residential, commercial, or holiday accommodation. This includes not just the regular rent payments, but other related income streams as well, as recognised by HMRC.
Apart from standard rent, your taxable rental income can include:
- Advance rent payments
- Late payment charges
- Lease renewal fees
- Compensation for early termination of tenancy
- Forfeited security deposits (e.g., for property damage or unpaid rent)
Any extra payments made by the tenant for services or benefits connected to the use of the property are also considered rental earnings.
These can include:
- Utility charges (gas, electricity, water) if paid to the landlord
- Cleaning fees for shared or communal areas
- Charges for the use of furnished property or appliances
- Parking fees
All these earnings are all part of your taxable income and must be declared in your Self Assessment tax return.
Tax Rates for Rental Income (2025/26)
The main income tax rates and bands for 2025/26 remain largely consistent with the previous tax year. However, the continued freeze on thresholds means that “fiscal drag” remains a factor.
The tax rates for England, Wales, and Northern Ireland are:
- Personal Allowance: Up to £12,570 = 0%
- Basic Rate: £12,571 to £50,270 = 20%
- Higher Rate: £50,271 to £125,140 = 40%
- Additional Rate: Over £125,140 = 45%
Scotland: 2025/26 Income Tax Bands
Landlords residing in Scotland should refer to the Scottish Income Tax structure:
| Band | Tax Rate |
|---|---|
|
Starter Rate (£12,571 – £14,876) |
19% |
|
Basic Rate (£14,877 – £26,561) |
20% |
|
Intermediate Rate (£26,562 – £43,662) |
21% |
|
Higher Rate (£43,663 – £75,000) |
42% |
|
Advanced Rate (£75,001 – £125,140) |
45% |
|
Top Rate (Over £125,140) |
48% |
The £1,000 Property Income Allowance
If your gross rental income is under £1,000 a year, you may not need to register for Self Assessment or pay tax. This is known as the Property Income Allowance. However, if you claim this allowance, you cannot deduct expenses—so it’s only beneficial if your actual costs are low.
Corporation Tax for Limited Company Landlords
If you operate your property business through a limited company, your rental profits are subject to Corporation Tax, not personal income tax. As of 2025/26:
- Companies with profits under £50,000 pay 19%
- Companies with profits between £50,001 and £250,000 pay a marginal rate
- Companies over £250,000 pay 25%
This structure may offer tax efficiency for landlords with multiple properties or higher income. Consult with us to see if incorporation is right for you.
New to renting? If you did not plan on becoming a landlord but are now letting out a property, don’t worry. Learn what to do next in our guide on Becoming an Accidental Landlord.
Tax-Free Allowances for Landlords
Allowable expenses are specific costs directly related to letting out your rental property and can be claimed to lower your income tax liability.
Landlords can claim deductions for a range of rental property expenses incurred during the normal operation of their business. These include:
- Professional fees: letting agent charges, legal costs for lease agreements, accountant fees
- Service charges and ground rent
- Utility bills (electricity, gas, water), if paid by the landlord
- Council Tax, when not paid by the tenant
- Repairs and maintenance: e.g., fixing broken boilers, plumbing, windows, roofing
- Insurance premiums: buildings, contents, landlord liability insurance
- Marketing and admin: advertising, phone bills, stationery, and online listing fees
Note: These costs must be wholly and exclusively for the purpose of renting out the property to qualify for tax relief.
Get more tips on how to reduce tax on rental income in our latest guide!
Non-Allowable (Capital) Expenses
Landlords cannot claim tax relief for the costs of improvements or capital upgrades, such as installing a new extension, converting a loft, or upgrading the kitchen beyond its original standard. These are considered capital expenses and may only be deducted when calculating Capital Gains Tax upon sale of the property.
Mortgage Interest and Finance Costs
As of April 2020, landlords can no longer deduct mortgage interest as an allowable expense. Instead, you receive a basic rate tax credit (20%) on your finance costs, including:
- Mortgage interest
- Interest on loans to buy furnishings
- Fees related to securing loans for the rental property
This change impacts higher-rate and additional-rate taxpayers. It reduces the former tax advantages previously enjoyed by buy-to-let landlords.
Replacement of Domestic Items Relief
The Replacement of Domestic Items Relief is still available for unfurnished or partly furnished properties. This applies to the cost of replacing:
- Sofas
- Beds
- White goods (e.g., washing machines, fridges)
- Curtains, carpets, and kitchenware
Note: Only the cost of the replacement item (not the original or any upgrade) can be claimed. Installation and disposal costs may also be included.
Keeping Good Records
To stay compliant and maximise your property tax relief, landlords must keep clear records, including:
- Receipts and invoices for all expenses
- Detailed rental income statements
- Evidence of finance costs
- Documentation for any replaced items
Our team at Legend Financial can help you ensure your Self Assessment is accurate, so you never miss a deduction you are entitled to.
When Should I Report Tax on Rental Income?
You need to report your rental income to HMRC before the deadline, following the end of the tax year.
You must register for Self Assessment if:
- Your rental income exceeds £1,000 (gross) and you’re not already registered.
- Your total rental profits (after expenses) are over £2,500.
If your rental profits are under £2,500, you may be able to pay tax through a PAYE tax code adjustment.
When Is the Deadline?
The UK tax year runs from 6 April to 5 April the following year. You must declare your rental income on a Self Assessment tax return, which is due by:
- 31 October (if filing by paper)
- 31 January (if filing online) following the end of the tax year
For example, for income earned during the 2024/25 tax year (ending 5 April 2025), you must submit your online return by 31 January 2026.
What Are Rental Property Losses?
A rental property loss is when your allowable expenses exceed your rental income within a tax year. For example, if you earn £10,000 in rent but claim £12,000 in allowable costs, you incur a £2,000 loss.
You cannot offset this loss against other forms of income (like salary or dividends) in the same year. However, you can carry it forward to offset against future rental profits, reducing your taxable income in later years.
Carrying losses forward is a valuable form of tax relief, especially for landlords facing high maintenance or repair costs in a given year.
FAQs
As a Non-Resident Landlord (NRL), you are still liable for UK Income Tax on your UK rental profits. Your letting agent or tenant usually deducts basic rate tax (20%) from your rent before paying you. However, you can apply to HMRC (using form NRL1i) to receive your rent gross (without deductions). Regardless, you must register for Self Assessment and declare your UK rental income to HMRC.
If with a spouse/civil partner, income is typically 50:50 for tax, unless you elect for actual unequal shares (Form 17) based on true ownership. With others, it’s taxed according to your beneficial ownership shares.
CGT is tax on the profit when you sell a property that isn’t your main home. You pay it on the sale price minus purchase cost and certain expenses. For residential property, you generally report and pay within 60 days of completion.
Yes, via ‘Replacement of Domestic Items Relief’. You can claim the cost of replacing a like-for-like item (e.g., old washing machine for new) in a furnished property.
Yes. The Furnished Holiday Let (FHL) regime is abolished from April 2025, impacting tax benefits. Also, Making Tax Digital (MTD) for Income Tax Self Assessment begins rollout from April 2026 (for income over £50k) and April 2027 (for income over £30k), requiring digital record-keeping and quarterly updates.
Stay on Top of Rental Property Tax
Tax on rental income can be tricky to get right. Many landlords struggle with knowing which allowable expenses to include in their Self Assessment, or how to handle carried-forward losses and mortgage interest restrictions.
With Legend Financial’s expert tax advisors, you get accurate tax reporting. Whether you are managing multiple properties or are new to letting. Our team understands the ins and outs of landlord tax and can help make sure your rental income is working for you, not against you.
Contact us today and make your tax season stress-free.
