Rental income from UK property is taxed as part of your total income. After deducting allowable expenses, your rental profit is added to any other income you receive (employment, self-employment, pensions, etc.) and taxed at your marginal rate — 20%, 40%, or 45% depending on your total income.
Allowable Expenses
Landlords can deduct a range of expenses from their rental income, including letting agent fees, insurance premiums, maintenance and repairs (but not improvements), council tax and utility bills (if you pay them), accountancy fees, advertising costs, ground rent and service charges, and travel costs for property management.
The Mortgage Interest Restriction (Section 24)
Since April 2020, individual landlords can no longer deduct mortgage interest as an expense. Instead, you receive a basic rate tax credit of 20% of your mortgage interest. This change particularly affects higher-rate taxpayers.
For example, if you have £10,000 of rental profit and £8,000 of mortgage interest, you are taxed on the full £10,000 but receive a £1,600 tax credit (20% of £8,000). If you are a 40% taxpayer, your tax bill is £4,000 minus £1,600 = £2,400. Under the old rules, you would have been taxed on just £2,000 of profit, paying £800. That is a significant difference.
Looking Ahead: 2027 Rate Changes
From April 2027, the income tax rates on property income are increasing by 2 percentage points. The basic rate on rental income will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%. This makes tax-efficient structuring even more important for landlords.
Use our landlord tax calculator to estimate your tax liability on rental income, including the mortgage interest restriction.
M. Samiuddin QUADRI is a chartered certified accountant at Gladstone & Co. Accountants, advising property investors on tax planning and compliance.