Landlord tax: a guide to tax on rental income in the UK

Published Friday 15 May 2026

Table of contents

• What taxes do landlords pay?
• What counts as rental income?
• How much tax do you pay on rental income?
• Allowable expenses and tax relief
• What happens if you make a loss?
• Tax on multiple rental properties
• Rental income tax deadlines
• How to pay tax on rental income
• Capital Gains Tax when you sell a rental property
• Stay on top of landlord tax with Xero

Key takeaways

• Landlords in the UK pay Income Tax on rental profits, Capital Gains Tax (CGT) on property sales, and Stamp Duty Land Tax (SDLT) on purchases, with an additional 5% SDLT surcharge on second properties from 2025/26.
• You can deduct allowable expenses such as maintenance, insurance, and letting agent fees from your rental income, but mortgage interest is now only eligible for a 20% tax credit under Section 24.
• Making Tax Digital (MTD) for Income Tax starts in April 2026 for landlords earning over £50,000, requiring digital records and quarterly updates to HMRC.
• From April 2027, separate property income tax rates of 22%, 42%, and 47% will apply to rental profits, representing a 2% increase over standard Income Tax bands.

What taxes do landlords pay?

UK landlords can face five main taxes across the property lifecycle: when you buy, while you earn rental income, and when you sell. Here's a breakdown of each for the 2025/26 tax year.

Stamp Duty Land Tax (SDLT)

You pay SDLT when you buy a property in England or Northern Ireland. The standard residential rates for 2025/26 are:

• 0% on the first £125,000
• 2% on £125,001 to £250,000
• 5% on £250,001 to £925,000
• 10% on £925,001 to £1.5 million
• 12% on anything above £1.5 million

If you're buying an additional property, you'll pay an extra 5% surcharge on top of each band. Wales uses Land Transaction Tax (LTT) and Scotland uses Land and Buildings Transaction Tax (LBTT), which have their own rates and thresholds.

Income Tax

Rental profits are added to your other income and taxed at the standard Income Tax rates for 2025/26. These are 20% for basic rate, 40% for higher rate, and 45% for additional rate. Your personal allowance of £12,570 applies before any tax is due.

National Insurance

Most landlords don't pay National Insurance (NI) on rental income. NI only applies if HMRC considers your property activities to be a trade rather than an investment. You can check the latest guidance on paying tax when renting out a property on GOV.UK.

Capital Gains Tax (CGT)

When you sell a rental property, you pay CGT on any profit above the annual exempt amount. For 2025/26, the exempt amount is £3,000. Residential property gains are taxed at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers.

Corporation Tax

Some landlords choose to hold properties through a limited company. The main Corporation Tax rate is 25% for 2025/26. This can be lower than paying higher-rate Income Tax personally, and mortgage interest is fully deductible as a business expense. However, there are extra costs to consider, including accountancy fees, company filing obligations, and potential tax charges if you transfer existing properties into a company.

What counts as rental income?

Rental income includes more than just the monthly rent your tenants pay. HMRC counts any money you receive from a property you let out.

This covers:

• rent payments
• charges for utilities or services you provide
• non-refundable deposits
• income from letting a parking space or storage area
• payments for use of furniture

The £1,000 property income allowance

If your total property income is under £1,000 in a tax year, you don't need to tell HMRC or file a Self Assessment tax return. This property income allowance applies automatically for 2025/26. If your income exceeds £1,000, you can choose to deduct the allowance instead of claiming your actual expenses, whichever gives you a lower tax bill.

The Rent a Room scheme

If you let a furnished room in your own home, you can earn up to £7,500 tax-free each year through the Rent a Room scheme. This applies for 2025/26 and covers income from lodgers living in your main residence. You don't need to be a homeowner to use it; the scheme is also available if you're a tenant who sublets.

How much tax do you pay on rental income?

Your rental profits are added to your other income and taxed at the standard Income Tax rates. For 2025/26, the bands are:

• Personal allowance: £12,570 (0% tax)
• Basic rate: 20% on income from £12,571 to £50,270
• Higher rate: 40% on income from £50,271 to £125,140
• Additional rate: 45% on income above £125,140

Worked example

Pedro earns £25,000 from employment and £30,000 in rental profit. His combined income is £55,000. After deducting the £12,570 personal allowance, his taxable income is £42,430.

He pays 20% on income up to £50,270, which covers his first £37,700 of taxable income (£7,540 in tax). He then pays 40% on the remaining £4,730 above the basic-rate threshold (£1,892 in tax). His total Income Tax bill is £9,432.

New property income tax rates from April 2027

From April 2027, separate tax rates will apply specifically to property income. These are 2% higher than the standard bands:

• Basic rate: 22% (up from 20%)
• Higher rate: 42% (up from 40%)
• Additional rate: 47% (up from 45%)

Income Tax thresholds are frozen until 2031/32, so more landlords could move into higher tax bands as rents rise. Planning ahead for these changes is worth considering now.

Allowable expenses and tax relief

You can reduce your rental profits by deducting allowable expenses. These are costs you incur solely for the purpose of letting your property.

Common allowable expenses include:

• letting agent and property management fees
• maintenance and repair costs
• utility bills (if you pay them)
• ground rent, service charges, and rent on a leasehold property
• council tax (when the property is empty or you pay it as landlord)
• cleaning and gardening
• buildings and contents insurance
• advertising and stationery costs

Section 24 mortgage interest relief

Since April 2020, residential landlords can't deduct mortgage interest as an expense from rental income. Instead, you receive a 20% tax credit on your finance costs. This includes mortgage interest, overdraft interest, and fees for taking out or repaying loans.

For basic-rate taxpayers, the result is broadly the same. But if you're a higher or additional-rate taxpayer, you'll pay more tax than under the old rules. You can find detailed examples on the GOV.UK guidance for residential landlord tax relief changes.

What happens if you make a loss?

If your allowable expenses exceed your rental income, you make a property loss. You can carry this loss forward and set it against future rental profits from any property you own.

Losses from one property can offset profits from another in the same tax year. However, you can't set a property loss against other types of income, such as your salary or dividend income. The loss simply rolls forward until you have enough rental profit to use it.

Tax on multiple rental properties

If you own more than one rental property, HMRC treats them as a single rental business. You combine income and expenses from all properties on your tax return.

This means losses from one property automatically offset profits from another within the same tax year. The combined total is what you pay tax on.

Furnished holiday lets (FHLs) were previously calculated separately with special tax advantages. Those FHL tax benefits ended in April 2025, so all rental properties now follow the same rules.

Rental income tax deadlines

Missing a tax deadline can result in penalties. Keep track of these dates for the 2025/26 tax year:

• 5 October: Register for Self Assessment if it's your first year as a landlord
• 31 October: Submit a paper tax return
• 30 December: Request PAYE collection (to have tax collected through your tax code)
• 31 January: File your online tax return and pay your tax bill
• 31 July: Make your second payment on account

Late filing attracts an immediate £100 penalty, with further charges after three, six, and 12 months. You can check the full breakdown of Self Assessment penalties on GOV.UK. Keeping on top of these dates is easier with a clear system for tracking your Self Assessment registration deadline.

How to pay tax on rental income

Most landlords pay tax on rental income through Self Assessment. Here's how the process works.

You need to:

1. Register for Self Assessment with HMRC.
2. Receive your Unique Taxpayer Reference (UTR) number.
3. Keep records of all rental income and expenses throughout the tax year.
4. File your Self Assessment tax return by 31 January following the end of the tax year.
5. Pay any tax owed by the same 31 January deadline.

You can find step-by-step help with filing in the Xero guide to completing your tax return online. If you're new to rental income, the Xero guide on Self Assessment for landlords covers the essentials.

Making Tax Digital for Income Tax

From April 2026, landlords with combined property and self-employment income over £50,000 must keep digital records and send quarterly updates to HMRC. From April 2027, this threshold drops to £30,000.

You'll need compatible software to meet the requirements. Xero's Making Tax Digital for Income Tax tools can help you stay compliant and avoid last-minute scrambles at year end.

Capital Gains Tax when you sell a rental property

You pay CGT on the profit when you sell a rental property. For 2025/26, residential property gains are taxed at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. The annual exempt amount is £3,000.

You must report the sale and pay any CGT owed within 60 days of completion. If you've lived in the property as your main home at any point, you may qualify for Private Residence Relief on some or all of the gain.

For a detailed look at how CGT applies to property, read the Xero guide on Capital Gains Tax for landlords.

Stay on top of landlord tax with Xero

Tracking rental income, expenses, and tax deadlines across multiple properties can get complicated. Cloud-based accounting software helps you record transactions as they happen, categorise expenses automatically, and stay prepared for Self Assessment.

With Making Tax Digital for Income Tax starting in April 2026, having a digital system in place now puts you ahead. Xero lets you keep compliant records, generate reports, and share data with your accountant in real time. Try it for yourself and get one month free.

FAQs on landlord tax

Here are answers to some frequently asked questions about landlord tax in the UK.

Do I need to file a tax return as a landlord?

Yes, if your rental income exceeds the £1,000 property income allowance, or if your total income from all sources exceeds the £12,570 personal allowance for 2025/26. You'll need to register for Self Assessment and file a return each year.

What is the £1,000 property income allowance?

You can earn up to £1,000 from property in a tax year without reporting it to HMRC or paying tax on it. If your property income exceeds £1,000, you can choose to deduct the allowance instead of claiming actual expenses.

Do landlords pay National Insurance on rental income?

In most cases, no. Class 2 and Class 4 NI contributions apply to trading income, not investment income. If you only collect rent and don't provide services like cleaning or meals, HMRC is unlikely to treat your letting as a trade.

What is Making Tax Digital for landlords?

MTD for Income Tax replaces the single annual Self Assessment return with quarterly digital submissions. You'll use compatible software to send summary updates to HMRC four times a year, plus a final declaration. If your income is between £30,000 and £50,000, you join from April 2027 rather than April 2026.

Can I reduce my tax bill by using a limited company?

It depends on your income level. A limited company structure tends to benefit landlords paying 40% or 45% Income Tax, because Corporation Tax is 25% and mortgage interest remains fully deductible. But withdrawing profits as dividends triggers additional tax, and transferring existing properties into a company may incur SDLT and CGT charges. Speak to an accountant before restructuring.