Rental Income Tax Guide | How Landlords Are Taxed 2026

What is Rental Income?

Rental income is any money you receive from letting a property. This includes:

• Rent payments from tenants.
• Non-refundable deposits if you keep them.
• Amounts for goods or services provided with the let.
• Rent paid in advance — this is taxable in the year you receive it.

The Property Allowance: Tax-Free Rental Income

The Property Allowance is a tax-free allowance of £1,000 per year. If your gross rental income is £1,000 or less, you do not need to declare it to HMRC and you pay no tax on it.

If your gross rental income is between £1,000 and £10,000:

• You can choose to claim the Property Allowance instead of claiming actual expenses.
• If you claim the allowance, you deduct £1,000 from your rental income, and you cannot claim any other expenses.

If your gross rental income is over £10,000:

• You must file a tax return and you cannot use the Property Allowance. You must use the ‘actual costs’ method, where you deduct your actual allowable expenses from your income.

For more on when you need to file, see our guide: Landlord Tax Return Guide.

How is Rental Income Tax Calculated?

Your tax on rental income is calculated based on your taxable rental profit. This is your rental income minus your allowable expenses and other deductions (like the Property Allowance, if you claim it).

The profit is then added to your other income (e.g., employment income, savings interest) and taxed at your marginal rate. For a full explanation of tax rates, see our HMRC Self Assessment Guide.

Income Tax Rates for 2025-26

Example Calculation

• Rental income: £20,000
• Allowable expenses: £8,000 (repairs, insurance, letting agent fees)
• Taxable rental profit: £12,000
• Other income: £30,000 (employment)
• Total income: £42,000
• Personal Allowance: £12,570
• Taxable income: £29,430
• Tax calculation:
  • 20% on £29,430 = £5,886

Mortgage Interest Relief

The way mortgage interest is treated for tax purposes has changed significantly. You cannot deduct the full mortgage interest from your rental income. Instead, you receive a tax credit equal to 20% of the finance costs (including mortgage interest and fees).

This means:

• Higher and additional rate taxpayers don’t get the full relief they used to.
• The interest is not deducted from your income, which can push you into a higher tax band.
• The tax credit is applied after your tax is calculated.

For more detail, see our guide: Mortgage Interest Relief for Landlords.

Payments on Account

If your tax bill (including your rental income tax) is over £1,000, HMRC may require you to make Payments on Account.

• These are advance payments towards your next year’s tax bill.
• They are typically 50% of your previous year’s tax bill, paid in two instalments (31 January and 31 July).

How to Pay Your Rental Income Tax

You can pay your tax bill via:

• Direct Debit: The easiest method, especially for payments on account.
• Bank Transfer: Use the HMRC accounts and your UTR + ‘K’ as the reference.
• Debit Card: Pay online through your HMRC account.

For a full breakdown, see our guide: HMRC Payment Methods.

Using the Rental Income Tax Calculator

To estimate your tax liability, use our Rental Income Tax Calculator. It helps you understand your tax position before you file your return.

How We Can Help

Our team of ACCA-qualified accountants specializes in property tax. We can:

• Calculate your rental income tax accurately.
• Maximize your allowable expenses.
• Advise on tax-efficient property structures.
• Help you plan for Payments on Account.

This guide is intended for informational purposes and is based on UK tax regulations as of June 2026. Tax laws and government systems are subject to change. Always consult with a qualified professional regarding your specific financial situation. Right Tax Returns is an ACCA-registered firm.