Income Tax essentials for residential landlords

How much Income Tax do I pay?

Any rental income after most expenses will be charged to Income Tax at your marginal income tax rate. The marginal tax rate depends on all of your other income. This includes the income from your job and pension.

The tax rates for 2025/26 (currently frozen to end of 2027/28 tax year) for most people will be:

There are different rates of tax for dividend income.

Income Tax is calculated based on the entries you make on your tax return, which will show your income from all sources including any employment income you may have. Tax is payable under self-assessment on 31 January and 31 July each year.

Those with income above £100,000 will lose their personal allowance.

Non-UK resident taxpayers may have different income tax rules and rates.

When do I need to report my annual rental profits to HMRC?

You will need to report your rental profits to HMRC annually on your tax return. Tax returns are submitted online by 31 January following the end of the tax year in which you received rental income.

How do I calculate my rental profit upon which I pay income tax?

You need to calculate your rental profit on a tax year basis, from 6 April to the following 5 April. Rental profit is calculated as the difference between the rental income and most expenses.

The expenses that are deducted from income include repairs, decorating and letting agent fees.

Making Tax Digital

From April 2026, Making Tax Digital (MTD) obligations for landlords require those with annual property income over £50,000 to keep digital records and submit quarterly updates to HMRC using MTD compatible software. This is part of HMRC’s plan to modernise tax reporting and improve accuracy. Landlords meeting the MTD criteria will no longer file a traditional Self-Assessment return. Instead, landlords will need to send quarterly returns as well as a final declaration which will include other income sources each tax year. Those with rental income over £30,000 will be included from April 2027 and those with rental income over £20,000 will be included from April 2028.

What are the mortgage interest relief rules?

From April 2020, relief for their costs of finance was restricted to 20% of the interest paid.

What is the property allowance?

If you do not incur any rental expenses, or the rental expenses you incur are less than £1,000, you can instead use the tax-free property allowance of £1,000, which can be deducted against your rental income.

If you use the allowance, you can deduct up to £1,000, but not more than the amount of your income.

If your expenses are more than your income, it may be beneficial to claim the expenses instead of the allowance.

However, if you have two businesses and claim the property allowance in one business, you may not claim actual expenses in respect of the other business.

Do I still have to pay income tax if I make a rental loss?

Any losses arising from the rented property are still reported to HMRC on a tax return. They have to be carried forward and offset against any future profits arising from your rental business and cannot be offset against your other income.

Equally, please be aware that making a loss after deducting your mortgage principal payment may not result in a tax loss as your mortgage payment is not deductible as an expense when looking at your taxable rental profit.

Next Steps

If you have any questions about registering for self-assessment or Income Tax for landlords, do please get in touch with your usual Crowe contact.

*This article is for general informational purposes only. It is not intended to address your particular requirements and does not constitute legal, tax, investment, financial or other advice. Seek independent advice where required, as individual circumstances may vary.