If you receive rental income in the UK, you are required to pay Income Tax on your profit. How much you pay depends on your total income, your allowable expenses, and whether Section 24 affects your mortgage interest relief.
This guide covers everything UK landlords need to know about rental income tax: what counts as profit, which expenses you can claim, how Section 24 works, and what you need to do to stay compliant with HMRC.
Do Landlords Pay Tax on Rental Income?
Yes. Rental income is treated as taxable income by HMRC. You pay Income Tax on your net rental profit, which is your total rental income minus your allowable expenses.
You do not pay tax on the full rental income. Only the profit after expenses is taxable. This is why keeping accurate records of what you spend on the property matters.
If your rental income is below £1,000 in a tax year, you may be covered by the property income allowance and may not need to report it. Above that, you must declare it to HMRC through a Self Assessment tax return.
What Tax Rate Do Landlords Pay on Rental Profit?
Rental profit is added to your other income (salary, pension, self-employment income) and taxed at your marginal rate. The 2024/25 Income Tax bands in England, Wales, and Northern Ireland are:
| Tax Band | Taxable Income | Rate on Rental Profit |
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Above £125,140 | 45% |
If you are a basic rate taxpayer with a small amount of rental profit, you will pay 20% on that profit. If your total income pushes you into the higher rate band, you will pay 40% on the portion that exceeds £50,270.
Scottish landlords pay Scottish Income Tax rates, which differ from the rest of the UK.
What Expenses Can Landlords Deduct?
You can only deduct allowable expenses from your rental income. These must be costs incurred wholly and exclusively for the purpose of renting the property.
| Allowable (Can Claim) | Not Allowable (Cannot Claim) |
| Letting agent and management fees | Mortgage capital repayments |
| Landlord insurance premiums | Private use portion of expenses |
| Repairs and maintenance (like-for-like) | Property improvements or upgrades |
| Council tax and utilities (if you pay them) | Fines or penalties |
| Accountancy and legal fees | Personal clothing or travel (non-property) |
| Advertising costs to find tenants | Initial furnishings (claim via RFRA instead) |
| Ground rent and service charges |
Replacement of Domestic Items Relief
If you replace a furnished item such as a sofa, bed, or appliance on a like-for-like basis, you can claim the cost as an expense. This is called the Replacement of Domestic Items Relief (RDIR). You cannot claim for the initial cost of furnishing a property, only replacements.
Repairs vs improvements
Repairs are allowable. Improvements are not. Fixing a broken boiler is a repair. Upgrading to a new energy-efficient system when the old one was still functional is an improvement. HMRC distinguishes between the two, and getting this wrong is one of the most common landlord tax errors.
How Section 24 Affects Landlord Tax
| What is Section 24? Section 24 of the Finance Act 2015 removed the right for individual landlords to deduct mortgage interest as a business expense. It was phased in from 2017 and fully applied from April 2020. Instead of deducting mortgage interest from rental profit, you now receive a 20% tax credit on the interest paid. |
This change hit higher rate taxpayers hardest. Under the old rules, a higher rate taxpayer could deduct mortgage interest at 40%. Under Section 24, everyone gets only a 20% credit, regardless of their tax band.
It also means some landlords now pay tax on a profit they have not actually made. If your mortgage interest is high relative to your rental income, Section 24 can push you into a higher tax band even when your actual cash position is negative.
Section 24 example
A landlord with £14,400 rental income, £6,000 annual mortgage interest, and £3,200 in other allowable expenses who is already a basic rate taxpayer through employment:
| Item | Amount |
| Annual rental income | £14,400 |
| Allowable expenses (repairs, insurance, letting agent fees) | £3,200 |
| Net rental profit | £11,200 |
| Personal Allowance already used by employment income | £0 remaining |
| Rental profit taxed at basic rate (20%) | £2,240 |
| Mortgage interest relief (20% tax credit on £6,000 interest) | (£1,200) |
| Tax owed on rental income | £1,040 |
Without Section 24, the same landlord would have deducted £6,000 mortgage interest from their profit and paid tax on £5,200 instead of £11,200. The difference in their tax bill would be significant at higher income levels.
Do Landlords Need to File a Self Assessment Return?
Yes, in most cases. You must register for and file a Self Assessment tax return if:
- Your rental income is more than £1,000 in a tax year
- You are a higher rate taxpayer with any rental income
- Your rental profit pushes your total income above £100,000
- You have more than one property
The deadline for filing your Self Assessment return online is 31 January following the end of the tax year. The tax year runs from 6 April to 5 April the following year.
If you miss the deadline, HMRC charges an automatic £100 penalty, with further penalties if the return remains unfiled after three months.
Should Landlords Use a Limited Company?
Since Section 24 does not apply to limited companies, some landlords have moved their portfolios into a limited company structure to restore full mortgage interest relief.
Inside a limited company, mortgage interest is still a deductible business expense. The company pays Corporation Tax (19% to 25%) on its profits, rather than Income Tax at up to 45%.
| Is it worth incorporating your rental portfolio? It depends on your mortgage situation, the number of properties you hold, and whether you plan to reinvest profits or draw them out. Transferring properties into a company triggers Stamp Duty Land Tax and potentially Capital Gains Tax on the transfer. For landlords with larger portfolios and high mortgage costs, the long-term tax savings can outweigh the transfer costs. For landlords with one or two properties and small mortgages, it often does not. |
This is a decision that depends entirely on your numbers. If you are considering incorporating, speak to an accountant before doing anything. The transfer costs are real and the tax position is complex.
Key Landlord Tax Deadlines
- 5 April: end of the tax year
- 5 October: deadline to register for Self Assessment if you are a new landlord
- 31 January: deadline to file your Self Assessment return online and pay any tax owed
- 31 July: deadline for the second payment on account (if applicable)
HMRC operates a Payments on Account system for landlords whose Self Assessment tax bill exceeds £1,000. This means you may need to make advance payments toward next year’s bill in January and July.
Frequently Asked Questions
How much rental income is tax free in the UK?
The property income allowance allows you to earn up to £1,000 in rental income per tax year without paying tax or reporting it. Above £1,000, you must declare it through Self Assessment. Your personal allowance (£12,570 in 2024/25) also offsets rental profit if it has not already been used by other income.
Do I pay tax on rental income if I have a mortgage?
Yes. You still pay tax on your rental profit. Under Section 24, you no longer deduct mortgage interest as an expense. Instead, you receive a 20% tax credit on the mortgage interest paid. This means higher rate taxpayers pay more tax on rental income than they did before Section 24 was introduced.
What happens if I do not declare rental income to HMRC?
HMRC has access to Land Registry data, letting agent records, and third-party data to identify undeclared rental income. Failing to declare rental income is treated as tax evasion. Penalties can be up to 100% of the unpaid tax in serious cases, plus interest. HMRC’s Let Property Campaign allows landlords to come forward voluntarily and pay what they owe on better terms.
Can I claim travel expenses as a landlord?
Yes, in limited circumstances. You can claim travel costs for journeys made wholly for the purpose of managing your rental property, such as visiting to carry out repairs or inspect the property. You cannot claim for travel to collect rent or for general monitoring visits that are not directly tied to a specific task.
Do landlords pay National Insurance on rental income?
In most cases, no. Rental income from residential properties is not subject to National Insurance contributions. The exception is if HMRC considers your rental activity to be a business rather than passive income, which applies mainly to commercial landlords or those running furnished holiday lets.
Does rental income affect my personal allowance?
Yes. Rental profit is added to your total income. If your combined income from all sources exceeds £100,000, your personal allowance is reduced by £1 for every £2 above £100,000. Above £125,140, the personal allowance is lost entirely, which can create an effective tax rate of 60% on income in that band.
Need Help With Your Rental Income Tax?
M&B Tax Services handles Self Assessment and landlord tax returns for property owners across the UK. We make sure you are claiming every allowable expense, applying Section 24 correctly, and paying only what you owe.
We are ICB-regulated accountants based in Rugby. Whether you have one rental property or a growing portfolio, we deal with HMRC so you do not have to.
Book a free 30-minute call and we will review your rental tax position at no cost.
Joanna Bruty
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