Rental Income Tax: How Much Do Landlords Pay

How Rental Income Is Taxed

Rental income is added to your other income and taxed at your marginal income tax rate. There is no separate "rental income tax" — it is simply part of your total income for the year.

For 2025/26, the rates are:

• 0% on the first £12,570 (Personal Allowance)
• 20% on income from £12,571 to £50,270
• 40% on income from £50,271 to £125,140
• 45% on income above £125,140

If you have employment income of £35,000 and rental profit of £12,000, your total income is £47,000. The first £12,570 is tax-free, the next £34,430 is taxed at 20%, and the remaining £0 falls within the basic rate band. Your effective rate on the rental income is 20%.

But if your employment income were £48,000 and rental profit £12,000, your total income would be £60,000 — pushing £9,730 into the higher rate band at 40%.

Calculating Your Rental Profit

Your rental profit is not simply the rent you receive. It is:

Rental income minus allowable expenses = rental profit

Allowable Expenses Include:

• Letting agent fees
• Insurance (buildings, contents, landlord)
• Repairs and maintenance
• Ground rent and service charges
• Accountancy fees for rental accounts
• Travel to the property for management
• Advertising costs
• Safety certificates (gas, electrical, EPC)
• Cleaning between tenancies
• Replacement of domestic items

Mortgage Interest

Mortgage interest is no longer deducted as an expense. Instead, you receive a 20% tax credit on your finance costs. This means your taxable rental profit is calculated before deducting mortgage interest, but you get a credit that reduces your final tax bill.

How Much Will You Pay?

Quick Estimate

| Annual Rental Profit | Approximate Tax (basic rate) | Approximate Tax (higher rate) | |---------------------|-----------------------------|-----------------------------| | £5,000 | £1,000 | £2,000 | | £10,000 | £2,000 | £4,000 | | £15,000 | £3,000 | £6,000 | | £20,000 | £4,000 | £8,000 |

These are simplified estimates. Your actual tax depends on your total income across all sources, your Personal Allowance, and any mortgage interest tax credit.

The £1,000 Property Allowance

If your total property income is £1,000 or less, you do not need to tell HMRC or pay tax. If it exceeds £1,000, you can choose to deduct the £1,000 allowance instead of actual expenses (only beneficial if your expenses are minimal).

Reporting Rental Income

You report rental income on your Self Assessment tax return. If you have not previously submitted tax returns, you need to register with HMRC for Self Assessment. The deadline for the 2025/26 return is 31 January 2027 (online).

Track your rental income and expenses with Accounted for accurate tax calculations throughout the year.

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Know your rental tax before it is due. Sign up for Accounted and let Penny calculate your property tax as you go.