How is rental income taxed in the UK?

Rental income is added to your other income and taxed at your marginal rate: 20% (basic), 40% (higher), or 45% (additional). You can deduct allowable expenses such as letting agent fees, repairs, and insurance. Mortgage interest is no longer deductible — instead you receive a 20% tax credit on interest payments.

What is the Property Allowance for landlords?

The Property Allowance gives you £1,000 of tax-free property income per year. If your gross rental income is £1,000 or less, you do not need to report it. Above £1,000, you can choose to deduct either actual expenses or the £1,000 allowance — whichever is more beneficial.

How does the mortgage interest restriction affect landlords?

Since April 2020, mortgage interest cannot be deducted as an expense. Instead, you receive a tax credit at 20% of your interest payments. This means basic rate taxpayers are unaffected, but higher rate (40%) and additional rate (45%) taxpayers lose the difference between their marginal rate and 20%.

Landlord Tax: How Rental Income Is Taxed (2026/27)

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