Rental Income Tax Calculator 2025/26

How is rental income taxed in the UK?

Rental income is taxed as part of your total income at your marginal income tax rate. Your rental profit is calculated as gross rental income minus allowable expenses. This profit is then added to your other income (salary, pension, dividends) to determine the tax band it falls into. Basic rate taxpayers pay 20% on rental profits, higher rate taxpayers pay 40%, and additional rate taxpayers pay 45%. National Insurance is not charged on rental income.

What is Section 24 and how does it affect landlords?

Section 24 (also known as the mortgage interest restriction or tenant tax) prevents landlords from deducting mortgage interest as an expense from rental income. Instead, you receive a 20% tax credit on your mortgage interest payments. This significantly increases the tax bill for higher rate taxpayers. For example, a 40% taxpayer with £10,000 in mortgage interest would have saved £4,000 under the old rules but now receives only a £2,000 tax credit — a £2,000 increase in their tax bill. Section 24 also pushes some basic rate taxpayers into the higher rate band because the full rental income (before mortgage interest) counts towards their total income.

What expenses can landlords deduct?

Allowable expenses include letting agent fees, buildings and contents insurance, maintenance and repairs (but not improvements), council tax and utility bills if you pay them, legal fees for lettings (not purchase), accountancy fees, advertising costs for finding tenants, ground rent and service charges, and travel costs for property management. You can also claim a 10% wear and tear replacement relief for replacing furnishings in fully furnished properties, calculated on the cost of the replacement item.

What is the property income allowance?

The property income allowance is £1,000 per year. If your total gross rental income is £1,000 or less, it is tax-free and you do not need to tell HMRC. If your income exceeds £1,000, you can choose to either deduct the £1,000 allowance instead of actual expenses, or deduct your actual expenses if they exceed £1,000. This allowance is mainly useful for people with very small rental incomes, such as those renting a room through Airbnb occasionally.

Do landlords need to register for Making Tax Digital?

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will require landlords with qualifying income over £50,000 to keep digital records and submit quarterly updates to HMRC from April 2026. Landlords with income over £30,000 will be required from April 2027. Qualifying income includes gross rental income before expenses. Landlords will need compatible software to submit quarterly summaries and an end-of-period statement. This replaces the annual Self Assessment tax return for property income.

How are multiple properties taxed?

If you own multiple rental properties, all income and expenses are pooled together for tax purposes. You calculate a single rental profit (or loss) across all your UK properties. This means a loss-making property can offset profits from another property in the same tax year. Overseas properties are calculated separately from UK properties. Each property's mortgage interest is subject to the Section 24 restriction individually, and the total 20% tax credit applies to the combined mortgage interest across all properties.

Can landlords use a limited company to reduce tax?

Buying properties through a limited company avoids Section 24 because companies can fully deduct mortgage interest as an expense. Corporation tax is then paid at 19-25% on profits. However, incorporating existing properties triggers capital gains tax and stamp duty, and extracting money from the company creates additional personal tax. A company structure is generally more tax-efficient for new purchases by higher rate taxpayers with significant mortgage debt, but each situation requires individual analysis.