Tax on Rental Income 2026/27
How rental profit is taxed
Rental income isn’t taxed separately from the rest of your income — it’s added on top of your salary, self-employment profit or pension income, and taxed at whatever your marginal Income Tax rate turns out to be once everything is combined: 20%, 40% or 45% depending on which band the total falls into. There’s no separate "rental tax rate" in the UK; your rental profit simply sits on top of everything else you earn.
Profit, not turnover, is what gets taxed. You can deduct genuine running costs — letting agent fees, landlord insurance, repairs and maintenance, ground rent, accountancy fees — from your gross rent before arriving at a taxable figure. Mortgage interest is the one major exception: since April 2020 it can no longer be deducted directly and instead earns a 20% tax credit under Section 24.
The £1,000 property allowance
- Every individual gets a £1,000 tax-free property income allowance for 2026/27, regardless of how many properties they own
- If your gross rental income is £1,000 or less for the year, it’s fully covered and usually doesn’t need reporting to HMRC at all
- Above £1,000, you choose whichever is better: deduct the flat £1,000 allowance, or deduct your real, itemised expenses — you can’t do both
- The allowance is rarely worth using once your actual costs (letting fees, insurance, repairs) exceed £1,000 a year, which is common for most let properties
Reporting and digital filing changes
From 6 April 2026, landlords with property income above £50,000 must comply with Making Tax Digital for Income Tax, meaning quarterly digital updates to HMRC rather than a single annual Self Assessment return. If your rental income is approaching that threshold, it’s worth getting your record-keeping into a compatible format now rather than scrambling closer to the deadline.