Rental profit is added to your other income and taxed at your usual rate. It is not a separate system, and it is not taxed at a flat rate. For most landlords, that means 20 per cent, 40 per cent, or a mix of the two depending on total income.
The trickier part is what counts as profit. Rent received is the easy bit; what you can take off against it is where people get caught out.
How the tax is worked out
Take the rent received in the tax year. Subtract allowable expenses. What is left is your rental profit. Add it to your salary, pension, and any other income, and the combined figure goes through the normal bands.
Allowable expenses
HMRC allows any expense that is wholly and exclusively for the letting business. The most common items are:
- Letting agent fees and tenant find fees.
- Building insurance and landlord-specific policies.
- Repairs and maintenance (but not improvements).
- Council tax and utilities, where the landlord pays rather than the tenant.
- Ground rent and service charges.
- Accountancy and legal fees related to lettings.
- Mileage at the HMRC rate for property visits.
Our allowable expenses calculator walks through the more common categories.
Mortgage interest is different
Since 2020, mortgage interest on residential buy-to-let is not deducted as a normal expense. Instead, landlords receive a basic rate (20 per cent) tax credit on the interest. That means higher-rate landlords save less on mortgage interest than they used to, and the restriction hits most where the rent barely covers the loan.
Limited company landlords are not affected by this restriction, which is one reason incorporation has grown.
Property allowance
If your gross rental income is under £1,000 a year, you usually do not need to declare it at all. If it is above £1,000, you can either claim actual expenses or take the flat £1,000 property allowance instead, whichever gives the lower tax.
Worked example
Say you earn £45,000 from employment and £14,000 rent from a single buy-to-let. Allowable expenses and the basic-rate credit on a £5,000 mortgage interest bill work through as follows:
- Rent £14,000 less £3,000 of running costs = £11,000 profit.
- Add to salary £45,000 = £56,000 total taxable.
- Tax due roughly £9,778 before the mortgage interest credit.
- Basic-rate credit on £5,000 interest = £1,000 reduction, giving £8,778.
Compare this with our landlord tax calculator.
Making Tax Digital is coming
From April 2026, landlords with combined rental and self-employed income over £50,000 must submit quarterly digital updates through Making Tax Digital for Income Tax. The £30,000 threshold follows in April 2027. If that applies to you, clean records and HMRC-compatible software are now a practical requirement, not a choice.
The bottom line
Rental income tax is simple in principle and fiddly in the detail. A tidy spreadsheet of rent, expenses, and mortgage interest — kept through the year rather than rebuilt in January — takes most of the stress out of it.