How much tax will I pay on rental income?

Scope: income tax on property applies UK-wide, but Scotland sets its own rates and bands. The worked examples use England, Wales and Northern Ireland rates for 2026/27.

There is no separate rate of tax on rental income. It is added to your other income and taxed at your marginal rate. The complication is that the profit figure the tax is charged on is not the money you actually keep.

The four steps

1. Add up the rent received.
2. Deduct allowable expenses — but not mortgage interest and not capital costs.
3. Add the result to your other income; tax it at your marginal rate.
4. Then reduce the tax by 20% of the mortgage interest.

Step 2 is where most surprise lives, and step 4 is the reason. Since 6 April 2020 mortgage interest has not been an expense — see section 24.

Worked: a basic-rate landlord

Employment income £30,000. One let: rent £12,000, costs £2,500, mortgage interest £5,000.

• Rental profit for tax: £12,000 − £2,500 = £9,500
• Total income: £30,000 + £9,500 = £39,500 — still basic rate
• Tax on the rental slice at 20%: £1,900
• Less finance cost relief, 20% × £5,000: −£1,000
• Tax due: £900

Cash actually kept: £12,000 − £2,500 − £5,000 − £900 = £3,600. Effective rate on real profit: exactly 20%. At basic rate the restriction is broadly neutral.

Worked: a higher-rate landlord

Same property. Employment income £60,000.

• Rental profit for tax: £9,500
• All of it above the higher-rate threshold, so 40%: £3,800
• Less finance cost relief, 20% × £5,000: −£1,000
• Tax due: £2,800

Cash kept: £12,000 − £2,500 − £5,000 − £2,800 = £1,700. Real profit before tax was £4,500, so the effective rate is 62% — not 40%.

That gap is the whole of section 24, and it is why "I pay 40% on rental income" understates it for a geared higher-rate landlord.

The thresholds it can push you through

Because the declared figure is inflated by interest, it is the number used for the higher-rate threshold, the personal allowance taper above £100,000, the High Income Child Benefit Charge and student loan repayments. A landlord can cross one of these on money that went straight to the lender.

What comes off, and what does not

Deductible: letting agent fees, insurance, ground rent and service charges, repairs, accountancy for the rental accounts, utilities and council tax you pay during voids, and replacement domestic items.

Not deductible: mortgage capital repayments (never were), mortgage interest (a credit instead), improvements, and SDLT or LTT — those last two reduce your capital gain instead.

The £1,000 allowance

You may take the property income allowance of £1,000 against gross rents instead of expenses. Take it and you deduct nothing else. It suits a tiny let with almost no costs; for a mortgaged property it is almost never right.

Two people, two allowances

Jointly held property is taxed 50/50 between spouses by default whatever the deeds say. Changing it can move income to a lower-rate earner and is often the single biggest legitimate saving available — see the 50/50 rule and Form 17.

When you have to tell HMRC

Self Assessment if property income is over the reporting threshold, and from 6 April 2026 Making Tax Digital if your gross qualifying income exceeded £50,000 — gross, not profit.

Information tool, not tax advice. Examples are illustrative and ignore the personal allowance interactions in step 3; take advice on your own position.