Tax on Rental Income: What UK Landlords Actually Pay

I am not an accountant and I will not pretend to be yours. What I can give you is the working map of tax on rental income that I wish someone had handed me before my first purchase: how it is calculated, what you can deduct, the mortgage interest rule that catches people out, and the new digital reporting rules that started this April. Rates and thresholds change, so treat every figure here as "at the time of writing" and have an accountant confirm your own position.

The one-minute version

If you own a rental property in your personal name, your rental profit is added to your other income and taxed at your usual income tax rates. Profit means rent received minus allowable expenses, not the rent itself. Basic-rate taxpayers pay 20% on that profit, higher-rate 40%, additional-rate 45%, with Scotland setting its own bands.

If the property sits inside a limited company, the company pays corporation tax on the profit instead, and different rules apply throughout. More on that below, because the difference matters more than it used to.

What counts as taxable rental income

Everything the tenancy pays you: rent, and any non-refundable charges that come with it. If your total property income is under £1,000 in a tax year, the property allowance means there is usually nothing to declare at all. Above that, you are in self assessment territory and the real question becomes what you can deduct.

What you can deduct

The costs of running the property come off the rent before tax is calculated. The usual suspects:

• Letting agent and management fees
• Landlord insurance
• Repairs and maintenance
• Ground rent and service charges
• Utilities and council tax, where you pay them
• Accountancy for the rental business, and advertising for tenants
• Replacing furniture and appliances like for like, under replacement of domestic items relief

The distinction that trips people up is repairs versus improvements. Fixing a broken boiler is a repair, deductible against income. Building an extension is an improvement, not deductible now, though it counts against capital gains when you sell. Repainting is a repair. Converting the loft is not. When in doubt, ask before you spend, not after.

Keep every invoice. Boring habit, and the most profitable sentence in this article.

The mortgage interest rule that changed everything

Here is the one that surprises new landlords. If you own personally, you can no longer deduct mortgage interest as an expense. Instead you get a tax credit worth 20% of the interest, regardless of your tax band.

For a basic-rate taxpayer, that lands in roughly the same place. For higher-rate taxpayers it does not, and it is the single biggest reason so many landlords now buy through limited companies, where interest remains fully deductible against profits.

This is also why we model every deal at today's mortgage rates with the tax treatment included, not the fantasy version. A property that only works before tax does not work.

Personal name or limited company?

Inside a company, profits are charged to corporation tax rather than income tax, currently 19% on small profits rising to 25% at the top, and mortgage interest is fully deductible. Sounds like a free lunch. It is not: getting the money out of the company, as salary or dividends, has its own tax, companies carry accountancy costs, and mortgage rates for companies typically run a little higher.

The honest answer is that it depends on your tax band, whether you are reinvesting profits or living off them, and your long-term plan. It deserves a guide of its own, and it is one of the first things we talk through on a call, always alongside your own accountant's advice.

Reporting it: self assessment, and now Making Tax Digital

If your rental profits take you past the property allowance, you register for self assessment (by 5 October after the tax year you first receive the income) and file by 31 January online, which is also when the tax is due.

And there is a new layer. From April 2026, Making Tax Digital for Income Tax applies to landlords whose gross rental and self-employment income together exceed £50,000. In scope, you keep digital records and send HMRC quarterly updates through compatible software, with a final declaration replacing the old annual return. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028, so most serious landlords will be in this system within a couple of years. Two reassurances: the tax payment dates have not changed, and limited companies are outside these particular rules. If your gross rents are anywhere near the threshold, get the software sorted now rather than in a January panic.

When you eventually sell

Income tax is the running cost; capital gains tax is the exit cost. Sell a rental you own personally and, at the time of writing, gains on residential property are taxed at 18% or 24% depending on your band, with a small annual exempt amount, and the sale must be reported and the tax paid within 60 days of completion. That 60-day rule catches people out every year. Diary it before you exchange.

Where tax fits in the decision

Tax is a cost in the deal rather than a reason to avoid property, and it can be modelled. It is a number in the deal, and numbers can be planned for. The landlords who get hurt are the ones who discover the rules in January; the ones who do well price tax into the purchase decision on day one, which is exactly how our ten-year modelling works and why the calculator asks about costs most spreadsheets ignore.

Get an accountant who knows property before you buy, not after. Their fee is deductible. Their advice is usually worth ten times it.

Working out whether a deal stacks up after tax? Model it in the calculator, read how the deposit and buying costs work, see what stamp duty on a buy-to-let actually costs, see what capital gains tax costs when you sell a rental property, or book a free consultation.