What Tax Do Landlords Actually Pay on Rental Income?
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What tax do landlords pay on rental income is one of the questions I get most often, and it catches more people off guard than you’d expect. If a property you own is bringing in rent, HMRC wants to know about it, and there’s more to it than just paying a percentage on what comes in.
How Rental Income Is Actually Taxed in the UK
Rental income counts as taxable income. You declare it through a Self Assessment tax return, and it gets stacked on top of any other income you already have. If you’re in a salaried job and also renting out a flat, your rental profit sits on top of your salary when HMRC calculates what you owe.
HMRC’s rental income statistics show that 2.86 million landlords declared rental income in 2023-24, with an average of £19,400 each. That’s a lot of people navigating this every year, and many of them are doing it for the first time without realising what they’re signing up for.
You’re required to file a Self Assessment even if your rental profit falls below the Personal Allowance. Many landlords miss this, especially if they’re already taxed through PAYE or their net profit looks small after expenses.
What Expenses Can Landlords Claim Against Rental Income?
Quite a few costs can be set against your rental income before tax is worked out. Repairs and maintenance, letting agent fees, landlord insurance, accountancy costs and mortgage interest all count. Mortgage interest isn’t fully deductible the way it used to be, though. For most individual landlords it’s now restricted to a 20% tax credit, which is a change that quietly hit a lot of people harder than they anticipated.
There’s an important difference between repairs and improvements that trips people up. Fixing a broken boiler is a revenue expense and reduces your taxable profit. Fitting a brand-new kitchen that’s a step up from what was there before is a capital improvement, and that gets treated differently for tax purposes. The NRLA has flagged this as one of the most common errors landlords make when filing, and it’s one I see regularly too.
The Tax Mistakes That Cost Landlords Real Money
HMRC’s enforcement activity in 2024-25 led to landlords paying £107 million in unpaid tax, averaging more than £13,500 per landlord. That’s not a small number. A lot of it comes down to avoidable errors rather than deliberate wrongdoing.
One mistake I see often is confusing equity with gain when it comes to Capital Gains Tax on a sold property. The taxable gain is the difference between what you paid and what you sold for, not the cash left in your pocket after paying off a mortgage. Another one is misreporting the income split on jointly owned properties. The split must match your ownership share, not whatever feels most tax-efficient at the time. And if you sell a residential property and CGT is due, you now have 60 days from completion to report and pay. Miss that window and penalties follow.
Making Tax Digital for Landlords: What’s Changing From April 2026
Making Tax Digital for Income Tax is the biggest change to how landlords report their finances in a generation. From 6 April 2026, landlords with total annual income from property and self-employment over £50,000 must keep digital records and send quarterly updates to HMRC using MTD-compatible software. The threshold drops to £30,000 from April 2027, and £20,000 from April 2028.
HMRC won’t provide the software itself. You’ll need to find and use a compatible tool, or work with an accountant who handles that side of things for you. If you’re currently tracking rental income on a spreadsheet or in a shoebox, this is the moment to think about getting a proper system in place before the deadlines arrive.
Tax for landlords is genuinely more involved than most people expect going in. There are allowances to claim, deadlines to hit, rules that have changed in recent years, and now a new digital reporting system on the way. If you want to talk through where you stand, just drop me a message. I’m happy to have a no-pressure conversation about what applies to your situation.
Want to go further with this?
If you’d like more detail on the practical side of landlord accounting, I’ve written a full guide. Or if you’d rather just talk it through with me directly, you can book a free call and we’ll go from there.
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AAT qualified accountant based in Strathaven. Personal, one-to-one accounting for small businesses and sole traders across the UK.
