Rental income is taxed as part of your overall income — but the calculation is more complex for landlords than for salaried employees because of allowable expense deductions, the Section 24 mortgage interest restriction, and how rental profit interacts with income tax bands.
For the full landlord tax overview including stamp duty, capital gains on disposal, and incorporation, see the Buy-to-Let Tax Hub.
Step-by-step: how to calculate rental tax
Step 1: Add up your gross rental income
Include all income from the property:
- Monthly rent received
- Any one-off charges to tenants (for example, early termination fees)
- Any other receipts from the property
Do not include: deposits held in a tenancy deposit scheme (these are not income until retained).
Step 2: Deduct allowable expenses
| Allowable | Not allowable |
|---|---|
| Letting agent fees | Mortgage capital repayments |
| Property management | Purchase price / legal costs to buy |
| Repairs and maintenance | Home improvements (e.g. extension, new kitchen that improves value) |
| Buildings and contents insurance | Private expenses unrelated to the property |
| Council tax and utilities (if you pay them) | Depreciation |
| Accountancy fees | |
| Ground rent, service charges | |
| Travelling to inspect the property |
Key rule: Repairs that restore a property to its original condition are deductible. Work that improves beyond the original standard is capital expenditure and is not deductible against income (though it may reduce a future CGT liability).
Step 3: Apply the mortgage interest tax credit (Section 24)
Since April 2020, residential landlords cannot deduct mortgage interest as an expense. Instead:
- Calculate your rental profit without subtracting mortgage interest
- Add rental profit to your other income to determine your tax band
- Calculate your income tax on total income as usual
- Deduct a tax credit equal to 20% of your mortgage interest from your income tax bill
This matters most to higher-rate taxpayers. A landlord paying £6,000 a year in mortgage interest previously received £2,400 tax relief (40%); they now receive only £1,200 (20%).
Step 4: Add rental profit to your other income
Your rental profit is added to your salary, pension, or other income. Income tax is then applied to the combined total.
| Tax band | Rate | Threshold (England/Wales/NI) |
|---|---|---|
| Personal allowance | 0% | Up to £12,570 |
| Basic rate | 20% | £12,571–£50,270 |
| Higher rate | 40% | £50,271–£125,140 |
| Additional rate | 45% | Over £125,140 |
Note: Your personal allowance tapers to zero at total income over £100,000 (losing £1 of allowance for every £2 above £100,000). Rental income counts towards this threshold.
Worked examples
Example 1: Basic rate landlord
- Annual rent: £12,000
- Expenses (agent fees, insurance, repairs): £2,500
- Mortgage interest: £4,800
- Other income (salary): £35,000
Rental profit (before interest): £12,000 − £2,500 = £9,500
Taxable income: £35,000 + £9,500 = £44,500
Income tax: (£44,500 − £12,570) × 20% = £6,386
Less 20% mortgage interest credit: £4,800 × 20% = £960
Net income tax: £6,386 − £960 = £5,426
Example 2: Higher-rate landlord
- Annual rent: £18,000
- Expenses: £3,000
- Mortgage interest: £9,000
- Other income (salary): £55,000
Rental profit (before interest): £18,000 − £3,000 = £15,000
Taxable income: £55,000 + £15,000 = £70,000
Income tax:
- £12,570 at 0% = £0
- (£50,270 − £12,570) × 20% = £7,540
- (£70,000 − £50,270) × 40% = £7,892
- Total: £15,432
Less 20% mortgage interest credit: £9,000 × 20% = £1,800
Net income tax: £15,432 − £1,800 = £13,632
The rental profit adds £6,000 to the tax bill (£15,000 × 40%) but generates only £1,800 in mortgage interest relief — a net rental tax cost of £4,200 compared with just £3,000 under the old full-deductibility rules.
Example 3: Property Income Allowance (small landlords)
- Annual rent from a lodger: £800
- No other property income
Tax: £0 — the Property Income Allowance exempts rental income up to £1,000 per year. No self-assessment return needed if total gross rental receipts are below £1,000.
Property Income Allowance summary
| Situation | Tax treatment |
|---|---|
| Gross rental income below £1,000 | Tax-free; no need to declare |
| Gross income £1,000–£2,500 | May not need a return — contact HMRC |
| Gross income over £2,500 (or £10,000 before expenses) | Must register for self-assessment |
You cannot use the Property Income Allowance and deduct expenses in the same year — it is one or the other, and you choose whichever is more beneficial.
Special situations
Renting a room in your own home (Rent a Room Scheme)
If you rent out a furnished room in your main home, the first £7,500 per year is completely tax-free under the Rent a Room Scheme. Above £7,500, you pay income tax on the excess (or can choose to be taxed on profit minus expenses — whichever is better for you).
Joint ownership
If a property is jointly owned (for example, by spouses or civil partners), income is normally split 50:50 and each owner declares their half on their own self-assessment return. You can elect for a different split that reflects the actual beneficial ownership proportions using HMRC Form 17, but the ownership shares must genuinely reflect the legal ownership.
Overseas property
Income from overseas rental property is also taxable in the UK if you are resident here. You may be able to deduct foreign tax paid against your UK liability under double taxation treaty rules. Overseas property cannot use the Property Income Allowance.
Key dates for landlords
| Deadline | What |
|---|---|
| 5 April | End of tax year — finalise rental accounts |
| 31 July | Payment on account deadline (if applicable) |
| 31 October | Paper self-assessment filing deadline |
| 31 January | Online self-assessment filing and tax payment deadline |
Related guides
- Buy-to-Let Landlord Tax Hub
- Capital Gains Tax Calculator — CGT when selling a rental property
- Tax Calculators Hub
- Calculators Hub