Becoming a landlord can be very profitable, but you must pay tax on rental income. To avoid penalties, you must understand your tax obligations, calculate how much tax you owe to HMRC and pay it by the required deadline.
You may be generating a healthy income if you’ve started renting out a property in Wapping, Canada Water or Vauxhall. In Southwark, for example, average monthly rents rose by 2.1% in Southwark over the last year, according to ONS figures. But there are costs to cover, and tax to pay. Â
As a new landlord, you must register for self-assessment with HMRC and file a tax return. Before you start, it is worth understanding the landlord tax rules – when you pay tax and which expenses you can claim.
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To help you, we’ve pulled together this landlord tax guide. Read on to find out how to calculate tax on your rental income…
In the UK, there are four main taxes for landlords to pay:
Landlords are required to pay income tax on rental income. The rental profits are calculated by deducting allowable expenses from the rent received. Allowable expenses include costs incurred by running your rental business, such as agent and management fees, legal fees, insurance premiums and advertising.
Many landlords are exempt from paying Class 2 or Class 4 National Insurance, since rental income is treated as investment income. However, some landlords may be eligible to pay Class 2 National Insurance voluntarily to add qualifying years to their state pension. Â
And if you’re buying a property to rent out, you must pay stamp duty land tax on the purchase, including the additional 5% if the property is your second home.
Capital gains tax (CGT) will also apply when a rental property is sold. CGT is a tax on any profit you make through increased property value, above the Capital Gains tax-free allowance of £3,000 for the year 2026/27. CGT rates are 18% of the gains for basic rate taxpayers. Taxpayers in the higher rate tax bracket must pay 24% CGT. Â
In most cases, your tenant will be liable for paying council tax to the local authority – however, this becomes the landlord’s responsibility if the property is unoccupied. You may also need to pay the council tax if you rent the property as a house in multiple occupation (HMO). Find out more about when landlords need to pay council tax in our detailed article.Â
The rental income tax you pay will depend on how much profit you make and how much income you receive from other sources, such as your job or a pension.
The rental income tax rates and thresholds for rental income in England in the year 2026/27 are the same as for other forms of income. Be aware that fiscal drag amid rising rents, and your rental income added to your personal income, may push you into a higher tax band.
It’s also worth noting that the government has proposed new, designated property income tax rates. These are set to be 2% higher than current standard rates, with effect from April 2027.Â
| Band | Taxable income | Tax rate (2026/27) |
| 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% |
Most rental income will be from the rent received, but other types of income are classed as rental income, such as cleaning and maintenance charges for communal areas. If you pay utility bills and include bills in the rent, this will also be considered rental income. If you keep any tenant’s deposit at the end of the tenancy, this will also be classed as rental income and must be included in your income tax calculations.
Landlords with more than one property can add the rents they receive from all their properties and deduct all their expenses. This allows landlords to offset expenses related to one of their rental properties against the rent paid for another property.
Landlords can also be taxed on reverse premiums and short lease premiums, but the rules can be complex. As a broad guide, a portion of lease premiums under 50 years is considered property income. Leases over 50 years are treated as capital and not property income for tax purposes.
While it isn’t possible to avoid paying rental income tax, you may be able to significantly reduce your tax bill through the deduction of allowable expenses. These are the expenses directly attributable to running a property business. Mortgage interest and finance costs are not included on the list of allowable expenses. Instead, they’re handled via the Section 24 tax credit, as we’ll explain shortly.
Allowable expenses include:
You can claim for moveable items of furniture such as sofas or soft furnishings under replacement of domestic items relief. Take note, if you upgrade, you can only claim tax relief for the value of an equivalent item.
Landlords receive a tax-credit, based on 20% of mortgage interest payments. The tax credit of 20% is the same for lower and higher-rate taxpayers. The credit rate is set to rise to 22% from April 2027, in line with the new property income tax rates.
These examples demonstrate how to calculate tax for rental income purposes. If you let out a 2-bed apartment in Shad Thames, charging £1,000 per week, this would be £52,000 annual rent. Â
If your property business makes a loss one year, you can offset this against your future rental income. For example – if you made a £2,000 loss in 2025/26 but a profit of £5,000 in 2026/27, the loss from the earlier year could be deducted from the following year’s profit, so the tax payable would be £3,000.
The first £1,000 of rental income is tax-free, as this is your property allowance. You must file a tax return if you have a total rental income over £10,000 before expenses or over £2,500 after deducting expenses. If your rental income is under £2,500, contact HMRC to discuss whether you will need to pay the income tax through PAYE.
Most landlords pay tax on rental income via their self-assessment tax return. Each tax year runs from 6 April until 5 April the following year, and you must register for Self Assessment with the deadline as 5 October after the end of the tax year during which you first received rental income. If you file your tax return online, the deadline for paying your tax is 31 January, following the end of the tax year. Taxpayers filing on paper need to do their tax return and pay it by the deadline of 31 October.
From 6 April 2026, landlords with gross income from property and/or self-employment over £50,000 must use Making Tax Digital-compatible software to keep digital records of property income and expenses, submit quarterly updates and file annual tax returns to HMRC. The first quarterly deadline for those in scope is 7 August 2026. The threshold drops to £30,000 from April 2027, and £20,000 from April 2028, so review your record-keeping now.
The thresholds for landlords to sign up to MTD is based on their self-employment and rental income:
If you think you have failed to disclose some rental income, the best action is to make a voluntary disclosure through the Let Property Campaign. There may be a penalty to pay, but it will usually be significantly less than the fine you will receive if you wait for HMRC to discover you have not disclosed income. Â
The process involves completing a questionnaire that will help you determine whether you need to disclose rental income you have not paid tax on. Read more on the gov.uk website.
For some landlords, it makes financial sense to register your property business as a limited company. This means you must pay corporation tax rather than income tax on the taxable profit. Landlords will pay themselves a salary, subject to income tax via PAYE, and any dividends paid will also be taxed.
There are the potential pros and cons, however, you must consult a tax specialist.
Pros:
Cons:
HMRC define non-resident landlords as spending 6 months or more outside the UK, regardless of citizenship status. They fall under the Non-Resident Landlord Scheme, and tax must be deducted at source by the letting agent or tenant at the base rate of 20%. However, you may qualify for approval to receive rent gross – our Non-Resident Landlord Scheme Guide explains how to apply. Â
In many cases, you can reduce your income tax liability through careful planning with the help of a specialist. For example, some landlords may consider:
However, the only sure way to understand your taxable income and ways to reduce your bill is to speak to a tax specialist.
If your tax affairs are complex – you have more than one property, additional sources of income, or you are considering renting out property through a limited company – or you don’t feel confident filing your self-assessment tax return, you could benefit from an accountant.
As an expert, your accountant will know all the taxation and taxable rental income rules, including which expenses you can claim and which receipts you need to keep. They could also lift some of the additional compliance burden of the new Making Tax Digital scheme if it applies to you. If you are choosing an accountant, look for someone with residential property taxation experience.
For more straightforward tax calculations, you can complete your tax return yourself. The DIY approach can be very straightforward and save you money. However, you must keep all the required records, including receipts for rent and expenses. From April 2026, landlords earning £50,000 or more will also need to use MTD-compatible software to file quarterly updates in addition to an annual return.
If you’re a London landlord in SE1, we can advise you about the financial and other aspects of renting out property in London Bridge, Waterloo, Bermondsey and Borough. Contact us today to find out more.Â
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Lee Whitelock
Director
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