Landlords in the UK pay Income Tax on their rental profits — that is, rental income minus allowable expenses. Rental income does not have a separate tax band; it sits on top of your other income (salary, pension, dividends) and is taxed at whichever Income Tax rates apply to you.
For 2025/26, the tax bands in England, Wales and Northern Ireland are:
Taxable Income Band
Rate
£0 – £12,570 (Personal Allowance)
0%
£12,571 – £50,270 (Basic Rate)
20%
£50,271 – £125,140 (Higher Rate)
40%
Over £125,140 (Additional Rate)
45%
Scotland has its own bands (19%, 20%, 21%, 42%, 45%, 48%) which apply to Scottish taxpayers.
Allowable Expenses for Landlords
You can deduct the following legitimate expenses from your rental income before calculating your taxable profit:
Letting agent fees and management charges
Buildings and contents insurance premiums
Repairs and maintenance (not improvements or capital works)
Council tax, water, gas, electricity (if paid by the landlord)
Cleaning and gardening between tenancies
Accountancy and legal fees relating to the let
Ground rent and service charges (for leasehold properties)
Advertising costs for finding tenants
Important: Capital improvements (e.g. adding an extension, new kitchen replacing a basic one) cannot be deducted as expenses. These are capital expenditure and may reduce CGT when you sell.
Property Allowance: £1,000 Per Year
If your total rental income is less than £1,000 per year, you pay no tax at all. If your income is above £1,000, you can either claim actual expenses or the £1,000 property allowance — whichever is higher. For landlords with very low expenses, the property allowance can sometimes be more beneficial. However, for most landlords with a mortgage, actual expenses will far exceed £1,000.
Section 24: Mortgage Interest Restriction
Section 24 of the Finance Act 2015 — fully phased in from April 2020 — is arguably the most significant tax change to affect UK landlords in a generation. Under Section 24, you can no longer deduct mortgage interest as an expense. Instead, you receive a 20% basic-rate tax credit on the mortgage interest paid.
Section 24 Example: The Impact on a Higher-Rate Landlord
Under Section 24 (current rules):
Taxable profit = £18,000 – £2,000 = £16,000 | Tax (40%): £6,400
Less 20% credit on mortgage interest: £9,000 × 20% = £1,800 Net tax payable: £4,600 — that's £1,800 more per year!
For basic-rate taxpayers, Section 24 makes no difference (you still effectively get 20% relief). The impact is severe for higher-rate and additional-rate taxpayers, and has driven many landlords to either sell up or move their properties into a limited company.
Capital Gains Tax on Selling a Rental Property
When you sell a residential rental property, any gain above your annual exempt amount is subject to Capital Gains Tax. From October 2024, the rates changed significantly.
Your Tax Position
CGT Rate on Residential Property
Basic Rate Taxpayer
18%
Higher or Additional Rate Taxpayer
24%
The annual CGT exempt amount for 2025/26 is £3,000 per person (reduced from £6,000 in 2023/24 and £12,300 in 2022/23).
60-Day Reporting Requirement
You must report and pay CGT on UK residential property within 60 days of completion. This applies even if you have an existing Self Assessment return. Failure to report on time results in interest charges and potential penalties. Use HMRC's Real Time Capital Gains Tax service to file your report.
Reducing Your CGT Bill
Deduct all allowable capital costs: purchase legal fees, stamp duty, improvement works (extensions, new kitchens etc.)
Use your annual exempt amount (and your spouse's if jointly owned)
Consider the timing of the sale relative to your tax year
If the property was ever your main residence, Private Residence Relief may reduce the gain
Letting Relief is now very limited — only available if you lived with your tenants
Limited Company Ownership for Landlords
An increasing number of landlords are purchasing new properties through a Special Purpose Vehicle (SPV) limited company. The key advantages are:
Full mortgage interest deductibility: Companies pay corporation tax on profits after all finance costs — Section 24 does not apply to companies.
Corporation tax rates: 19% for profits under £50,000, scaling to 25% for profits over £250,000 (2025/26).
Retained profits: You can retain profits in the company and extract them tax-efficiently over time.
Disadvantages include: mortgage rates for limited companies are generally higher, there are additional accounting costs, and extracting money as salary or dividends creates personal tax liability. Moving existing personally-held properties into a company is also expensive (SDLT and potential CGT apply).
Stamp Duty Land Tax Surcharge
Since October 2024, the additional SDLT surcharge on second homes and buy-to-let properties has increased to 5% (previously 3%). This applies to both personal and company purchases of residential property. Always factor this into purchase calculations.
Self Assessment & Making Tax Digital
If your rental income exceeds £1,000 per year, you must register for Self Assessment with HMRC. You should also register if you are liable to pay tax on rental income, even if already on PAYE for your main job.
The filing deadline is 31 January following the tax year end (e.g. 31 January 2027 for the 2025/26 tax year).
Making Tax Digital for Income Tax (MTD ITSA)
From April 2026, landlords (and self-employed individuals) with total income over £50,000 must use MTD-compatible software and submit quarterly updates to HMRC. From April 2027, this extends to those with income over £30,000. This is a major administrative change — landlords should start preparing their digital record-keeping now.
Non-Resident Landlord Scheme (NRLS)
If you live outside the UK for six months or more in a tax year, you are classed as a non-resident landlord. Your letting agent or tenant must deduct basic-rate tax from rental payments and pay it to HMRC, unless you register for the NRLS to receive rents gross.
Furnished Holiday Let Regime: Abolished April 2025
The Furnished Holiday Let (FHL) tax regime was abolished from 6 April 2025. Properties previously qualifying as FHLs are now taxed as standard buy-to-let properties. The lost benefits include:
Capital allowances on furniture and equipment
Profits counting as earnings for pension contributions
Business Asset Disposal Relief (10% CGT rate)
Full mortgage interest deductibility
Former FHL owners should review their tax position with an accountant to understand the full impact of this change.
Frequently Asked Questions
How much tax do landlords pay on rental income in 2026?
Rental income is taxed as ordinary income after allowable expenses. Basic rate taxpayers pay 20%, higher rate 40%, and additional rate taxpayers pay 45%. The personal allowance (£12,570 in 2025/26) applies if not used elsewhere. Your rental profit sits on top of other income, so a salary of £35,000 plus £10,000 rental profit means the rental income is taxed at 40% (above the £50,270 basic rate limit).
What is Section 24 and how does it affect landlords?
Section 24 restricts mortgage interest relief to a 20% basic-rate tax credit only. Higher-rate and additional-rate landlords can no longer deduct the full mortgage interest from rental income, significantly increasing their tax liability. For a higher-rate landlord paying £10,000/year in mortgage interest, this means they receive only £2,000 in tax relief rather than £4,000 — a £2,000 annual increase in their tax bill.
What are the CGT rates on selling a rental property in 2026?
Since October 2024, residential property CGT rates are 18% for basic rate taxpayers and 24% for higher rate taxpayers. The annual exempt amount is £3,000. You must report and pay CGT within 60 days of completion using HMRC's online service. Allowable deductions include purchase costs, legal fees, stamp duty, and capital improvements.
Do I need to submit a Self Assessment tax return as a landlord?
Yes, if your rental income exceeds £1,000 per year you must register for Self Assessment. The property allowance of £1,000 exempts landlords with very small rental income from filing. Even if your employer deducts tax via PAYE, rental income must be reported separately through Self Assessment. The deadline is 31 January following the tax year.
Is it better to own a rental property personally or through a limited company?
Limited companies pay corporation tax (19-25%) and can deduct full mortgage interest, making them attractive for higher-rate taxpayers. However, extracting profits as salary or dividends creates additional tax. Mortgage rates are typically higher for companies, and setup/running costs are greater. Moving existing properties into a company triggers SDLT and potentially CGT. Professional advice is essential as the right answer depends on your total income, number of properties, and long-term plans.
What happened to the Furnished Holiday Let tax regime?
The Furnished Holiday Let (FHL) regime was abolished from April 2025. FHL properties are now taxed as standard buy-to-let properties, losing benefits like capital allowances, pension contribution relief, and business asset disposal relief (10% CGT rate). Former FHL owners face higher tax bills and should review their position with a specialist property tax accountant.
What is Making Tax Digital for landlords?
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) applies from April 2026 to landlords and self-employed with income over £50,000, and from April 2027 for those over £30,000. Quarterly digital submissions to HMRC will be required using MTD-compatible accounting software. Landlords should start preparing their digital record-keeping systems well in advance of the deadline.