Rental Income Tax Calculator 2026

How rental income tax works in the UK

Rental income is subject to income tax in the UK. Your taxable rental profit is calculated by deducting allowable expenses — such as letting agent fees, insurance, and repairs — from your gross rental income. This profit is added to your other income (such as a salary or pension) and taxed at the appropriate rate.

Since April 2020, Section 24 rules have restricted how landlords with mortgages can claim tax relief. Mortgage interest is no longer deducted from rental profit — instead, you receive a 20% basic rate tax credit on the mortgage interest you pay. This has significantly increased the tax burden for higher and additional rate taxpayers with mortgaged properties.

Section 24: what landlords need to know

Section 24 of the Finance Act 2015 changed the treatment of mortgage interest for residential landlords. Under the old rules, mortgage interest was a deductible expense. Under Section 24, landlords calculate tax on their full rental profit (excluding mortgage interest), then deduct a 20% tax credit equal to 20% of the mortgage interest paid.

For a basic rate taxpayer, the result is broadly neutral. For a 40% taxpayer, the effective tax relief on mortgage interest drops from 40% to 20% — meaning they pay substantially more tax. For a 45% taxpayer, the impact is even greater.

Frequently asked questions

How much tax do landlords pay on rental income?

The amount of tax a landlord pays depends on their total income and whether they have a mortgage. Rental profit is added to other income and taxed at the relevant rate — 20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate. Under Section 24, mortgage interest is not fully deductible from rental profit; instead, landlords receive a 20% basic rate tax credit on mortgage interest paid, regardless of their tax band. This means higher rate taxpayers pay significantly more tax than they did before Section 24 was phased in.

What is Section 24 and how does it affect landlords?

Section 24 of the Finance Act 2015 (fully effective from April 2020) restricts the way landlords can claim tax relief on mortgage interest. Before Section 24, landlords could deduct mortgage interest directly from their rental income, reducing their taxable profit. Under Section 24, mortgage interest is no longer deductible from rental income. Instead, landlords receive a basic rate (20%) tax credit on their mortgage interest. For basic rate taxpayers the impact is neutral, but higher rate and additional rate taxpayers pay substantially more tax as a result.

Can I deduct letting agent fees from my rental income?

Yes. Letting agent fees, property management fees, insurance premiums, allowable repairs and maintenance, accountancy fees, and certain other expenses are fully deductible from your rental income to arrive at your taxable rental profit. Capital expenditure (such as extensions or loft conversions) is not allowable as a revenue expense but may reduce a future capital gains tax liability. Always keep receipts and consult a qualified accountant.

Should I put my rental property in a limited company?

Operating via a limited company can be tax efficient for higher and additional rate taxpayers because companies are not subject to Section 24 — they can still deduct mortgage interest in full. Corporation tax rates (currently 19–25% depending on profits) may also be lower than personal income tax rates. However, transferring an existing property into a company is likely to trigger a stamp duty charge and potentially a capital gains tax event. The decision depends heavily on your personal circumstances, future plans, and the number of properties you own. Seek advice from a specialist tax adviser before making any decision.

Do I need to complete a Self Assessment tax return for rental income?

Yes — if your gross rental income exceeds £10,000 or your rental profit exceeds £2,500 per year after allowable expenses, you must register for Self Assessment and complete a tax return. Even if you have tax deducted at source through another route, rental income must be declared separately. HMRC may also require a return if your rental income is below these thresholds but you owe tax for another reason. Register for Self Assessment by 5 October following the end of the tax year in which you started receiving rental income.

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