YF AccountingLast updated: 13 October 2026
6 min read
Landlords pay Income Tax at 20%, 40% or 45% on their rental profits in 2026/27, and the first £1,000 of rental income each year is tax free under the property allowance. Rental profits sit on top of your other income, so the rate you pay depends on your total taxable income for the year. Enjoy those rates while they last, because from 6 April 2027 rental income moves to its own set of higher rates: 22%, 42% and 47%.
Here is how the numbers work for the current tax year, what you can claim against your rent, and what the April 2027 change means if you own a buy to let.
How rental income is taxed in 2026/27
You are taxed on your rental profit, not the rent itself. Add up the rent you received in the tax year, deduct your allowable expenses, and the profit left over is added to your salary, pension or business income. Whatever lands in each band is taxed at that band’s rate.
| Band | Taxable income 2026/27 | Rate |
|---|---|---|
| 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 | Over £125,140 | 45% |
A quick example. You earn £40,000 from your job and make £15,000 of rental profit. Your total income of £55,000 pushes you over the £50,270 higher rate threshold, so £4,730 of the rental profit falls in the 40% band and the rest is taxed at 20%. Rental income is always treated as the top slice, which is why a modest buy to let can quietly turn a basic rate taxpayer into a higher rate one.
If you own more than one UK property, all your lets are treated as a single property business. Profits and losses across them are pooled into one figure.
The £1,000 property allowance
If your gross rental income is £1,000 or less in the tax year, it is tax free and you do not need to tell HMRC at all. Above that, you can choose to deduct a flat £1,000 instead of your actual expenses. That only makes sense when your real costs are lower than £1,000, which is rare for a genuine buy to let with insurance, repairs and agent fees. You cannot claim both the allowance and your expenses, so pick whichever saves you more.
Renting a furnished room in your own home is different. The Rent a Room Scheme lets you earn up to £7,500 a year tax free, or £3,750 each where the income is shared with someone else.
Allowable expenses you can claim
Day to day running costs of the let come off your rental income before tax. The main ones are:
- letting agent and management fees
- general maintenance and repairs, though not improvements
- landlord insurance for buildings, contents and public liability
- Council Tax, water, gas and electricity where you pay them
- ground rent and service charges
- accountancy fees for the rental business
- advertising for new tenants, phone calls and stationery
- replacing furniture, appliances and kitchenware under replacement of domestic items relief
Capital work is not allowable. Adding an extension, fitting a security system where there was none, or upgrading a kitchen beyond a like for like replacement all count as capital expenditure. Keep the receipts anyway, because those costs can reduce your Capital Gains Tax bill when you eventually sell.
Mortgage interest: the 20% credit
Individual landlords cannot deduct mortgage interest from rental income. Instead you get a tax credit worth 20% of your finance costs, which include mortgage interest, loan interest and arrangement fees. For a basic rate taxpayer the credit usually cancels out the tax on the interest. For higher and additional rate taxpayers it does not, because you pay 40% or 45% on the profit but only get 20% back on the interest.
Companies are not affected by this restriction, which is one reason some landlords with larger portfolios hold property through a limited company. It is not automatically better, so take advice before restructuring.
The April 2027 change: separate property rates
The November 2025 Budget created a separate set of Income Tax rates for property income. From 6 April 2027 rental profits will be taxed at a property basic rate of 22%, a property higher rate of 42% and a property additional rate of 47%. Each is 2 percentage points above the equivalent rate on wages. The mortgage interest credit rises to 22% at the same time, which softens the blow slightly for geared landlords.
The way you report and pay does not change, only the rates. But if you are weighing up whether to keep a rental property, sell it, or move it into a company, the 2027 change belongs in that calculation now rather than after it happens.
When you need to tell HMRC
You must report rental income on a Self Assessment tax return if your profit is more than £2,500 after expenses, or your gross rent is £10,000 or more before expenses. Below those levels HMRC can sometimes collect the tax through your tax code, but you still need to tell them about income over £1,000.
If you have never filed a return before, register by 5 October following the end of the tax year you first had rental income. So for rent first received in 2025/26, the registration deadline is 5 October 2026. Our step by step guide to registering for Self Assessment walks you through it.
Making Tax Digital: landlords are in first
Making Tax Digital for Income Tax is already live for landlords and sole traders with qualifying income over £50,000, who joined from 6 April 2026. Qualifying income means your combined gross income from property and self employment before expenses, not your profit. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028, so a single rental property can be enough to bring you in. Those inside the regime keep digital records and send HMRC quarterly updates through software.
Want someone to handle all of this for a fixed fee? See our landlord accountant service: Self Assessment with rental income from £35 a month.
Frequently asked questions
Do I pay National Insurance on rental income?
Usually no. Rental income is not earnings, so there is no Class 4 National Insurance on it. If letting property is your main occupation you may be able to pay voluntary Class 2 contributions to protect your State Pension record, and voluntary Class 3 is an option for others with gaps to fill.
How is rent split if my spouse and I own the property jointly?
Married couples and civil partners who own a property jointly are taxed 50/50 by default, whatever the mortgage or deposit history. If you actually own the property in unequal shares you can elect to be taxed on those shares instead by sending HMRC a Form 17 with evidence. Splitting income towards the lower earning spouse is one of the simplest legitimate ways for couples to cut the overall tax bill.
What if I have rental income I never told HMRC about?
Come forward before HMRC finds you. The Let Property Campaign lets landlords disclose undeclared rental income on much better penalty terms than if HMRC opens an enquiry first, and HMRC receives data from letting agents, deposit schemes and the Land Registry, so silence rarely lasts. You get a reference number and three months to work out what you owe and pay it.
Can I claim a loss on my rental property?
Yes. If your allowable expenses exceed your rental income, the loss carries forward automatically against future profits from the same property business. You cannot set it against your salary or other income, but with several properties a loss on one offsets profits on the others in the same year.
Do I need an accountant for a rental property?
Plenty of landlords with one simple let manage their own return, but an accountant earns their fee when mortgage interest, joint ownership, Making Tax Digital or the 2027 rate change enter the picture, and the fee itself is an allowable expense. YF Accounting looks after landlords across the UK on fixed monthly fees, and our Self Assessment guide is a good place to start.
Own a rental property and not sure what the 2027 changes mean for you? Get in touch with YF Accounting for a fixed fee, plain English answer.
Founder of YF Accounting, a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
Related reading
Your First Tax Return: Exactly What Your Accountant Needs From You (2025/26)
Register for Self Assessment by 5 October 2026: Last Call for 2025/26
Accountant for Contractors and Freelancers: What You Actually Need in 2026/27This article is part of our Self Assessment guide. See the full topic for related reads.