Rental Income Tax Calculator UK 2025

How Rental Income Tax Works in the UK

For the 2025/26 tax year, landlords in England, Wales, and Northern Ireland are taxed on their net rental profit — that is, their gross rental income minus allowable expenses. This profit is treated as income and stacked on top of any other income, such as salary or pension, to determine the applicable tax rate.

The personal allowance for 2025/26 is £12,570. Income above this threshold is taxed at 20% up to £50,270 (basic rate), 40% between £50,270 and £125,140 (higher rate), and 45% above £125,140 (additional rate). If your total income (salary plus rental profit) exceeds £100,000, your personal allowance begins to taper at a rate of £1 for every £2 of income above £100,000, which creates an effective 60% marginal rate between £100,000 and £125,140.

Section 24: The Mortgage Interest Tax Credit

One of the most significant changes to affect UK landlords in recent years is Section 24 of the Finance Act 2015 (also known as the mortgage interest relief restriction). Fully phased in from April 2020, this legislation ended the ability for landlords to deduct mortgage interest as an expense from rental income.

Under the old rules (pre-April 2017), landlords could deduct 100% of their mortgage interest from rental income before calculating tax. A landlord in the higher rate band paying £10,000 per year in interest would save £4,000 in tax. Under Section 24, landlords must now add back all mortgage interest into their rental income calculation, then claim a 20% basic rate tax credit on the interest paid. That same landlord now saves only £2,000 — a £2,000 annual increase in tax.

The practical effect is that some basic rate landlords have been pushed into the higher rate band (because mortgage interest is no longer deducted before determining their tax band). Higher rate and additional rate landlords face materially higher tax bills. Many landlords have incorporated their portfolios into limited companies as a result, since companies pay corporation tax (currently 25%) and can still deduct mortgage interest in full.

Allowable Expenses: What Landlords Can Deduct

Allowable expenses reduce your taxable rental profit and must be wholly and exclusively for the purpose of your rental business. The most common allowable expenses include:

• Letting agent fees and management fees — typically 8% to 15% of gross rent for a managed service
• Property repairs and maintenance — but not improvements or capital works
• Landlord insurance — buildings, contents, and rent guarantee insurance
• Accountancy and professional fees — for preparing rental accounts
• Advertising costs — to find tenants
• Council tax, water rates, and utilities — if paid by the landlord during void periods
• Ground rent and service charges — on leasehold properties
• Travel costs — to inspect or maintain the property (mileage at approved HMRC rates)

Expenses that are not allowable include capital improvements, personal costs, and the cost of mortgage repayments (the capital element). Mortgage interest, while no longer an allowable expense, still generates the 20% basic rate tax credit as described above.

Wear and Tear Allowance and Replacement Relief

The old wear and tear allowance for furnished lettings was abolished in April 2016. It has been replaced by replacement of domestic items relief, which allows landlords to claim the cost of replacing items such as furniture, white goods, carpets, and curtains. Only the cost of the replacement item is claimable (not the original purchase), and the replacement must be like-for-like or equivalent. If you purchase a significantly better replacement, only the cost of the equivalent item is deductible.

Cash Flow vs Tax Profit: Understanding the Difference

A common source of confusion for landlords is the difference between their rental profit for tax purposes and their actual cash flow. Your taxable rental profit is calculated as rental income minus allowable expenses (excluding mortgage capital repayments and the interest element, which is now replaced by the 20% credit). Your cash flow, however, also subtracts the full mortgage payment — both interest and capital repayment.

This means it is entirely possible to have a taxable profit but a negative cash flow, particularly for highly geared landlords with large mortgages. Understanding both figures is essential for landlord financial planning.

Filing Your Rental Income: Self-Assessment

All landlords with gross rental income above £1,000 per year must register for self-assessment with HMRC and complete an annual tax return. The UK property income pages (SA105) are used to declare rental income and expenses. Key deadlines are 5 October (registration), 31 October (paper return), and 31 January (online return). Payments on account are due 31 January and 31 July if your tax bill exceeds £1,000.

Landlords who fail to register or file accurately risk penalties, surcharges, and interest on unpaid tax. HMRC has significantly increased its focus on undeclared rental income in recent years, including use of data from the Valuation Office Agency, letting agent reporting, and the Let Property Campaign.

Furnished Holiday Lettings (FHLs)

Furnished holiday lettings are treated differently from standard residential lettings for tax purposes. To qualify as an FHL in 2025/26, the property must be available for letting for at least 210 days per year and actually let for at least 105 days. FHLs benefit from: the ability to claim capital allowances on furniture and equipment, eligibility for business asset disposal relief on sale, and until April 2025 they were treated as earned income for pension contribution purposes. Note that HMRC announced in the Spring Budget 2024 that the FHL regime will be abolished from 6 April 2025, bringing FHL tax treatment in line with standard residential letting.

Non-Resident Landlords

Landlords who live outside the UK are subject to the Non-Resident Landlord (NRL) scheme. Letting agents and tenants paying rent directly are required to withhold 20% basic rate tax from rental payments unless the landlord has registered with HMRC's NRL scheme and received approval to receive rent gross. Non-resident landlords are still liable for UK income tax on rental profits and must complete a self-assessment tax return.

Frequently Asked Questions