UK Rental Income Tax Calculator

Rental income is added to your other income and taxed at your marginal income tax rate (20%, 40% or 45%). You can deduct allowable expenses such as letting agent fees, insurance, repairs, and maintenance. However, mortgage interest is no longer deductible — instead you receive a 20% tax credit on the interest paid.

Since April 2020, landlords can no longer deduct mortgage interest from rental income. Instead, they receive a basic rate (20%) tax credit on their mortgage interest payments. This means higher and additional rate taxpayers pay more tax on rental income than before the 2017 changes — the Section 24 restriction.

The property allowance lets you earn up to £1,000 of gross rental income tax-free without reporting it. If your rental income is between £1,000 and £2,500 you must tell HMRC, and above £2,500 of profit (or £10,000 of income) you must file a Self Assessment return. If your income is over £1,000 you can either deduct the £1,000 allowance instead of actual expenses, or claim actual expenses — whichever is higher.

Allowable expenses include letting agent fees, buildings and contents insurance, maintenance and repairs (not improvements), council tax and utility bills if paid by you, ground rent and service charges, accountancy fees, and direct costs such as advertising for tenants. Capital improvements and mortgage capital repayments are not deductible — mortgage interest gets the separate 20% credit instead.

No. Rental income from being a landlord is treated as investment income, not earnings, so there is no Class 1, 2 or 4 National Insurance on it. The only exception is if you run a property business at a scale and level of activity that HMRC treats as a trade (for example, a furnished holiday let business with substantial services), which is rare.

A higher-rate (40%) or additional-rate (45%) landlord is taxed on the full rental profit before mortgage interest, but only gets the interest relief back as a 20% credit. So a higher-rate landlord effectively pays 40% on rental profit while recovering interest at only 20% — the gap is the Section 24 cost. Basic-rate (20%) landlords are unaffected because their tax rate matches the credit rate.

You must register for Self Assessment and file a return if your rental profit is more than £2,500, or your total rental income before expenses is more than £10,000. Between £1,000 and £2,500 of profit you should contact HMRC, who may collect the tax through your tax code. Under £1,000 of gross income the property allowance covers it and no reporting is needed.