How is rental income taxed in the UK for 2026/27?

Full answer

Rental income from UK property is assessed as property income and added to your other income (salary, pension, etc.) for income tax purposes. **How rental profits are calculated** Rental profit = Gross rental income − Allowable expenses Allowable expenses for 2026/27 include: - Letting agent fees and management charges - Buildings and contents insurance - Maintenance and repairs (not improvements) - Council tax, water rates (if paid by the landlord) - Accountancy fees - Legal fees for tenancy renewals under 1 year - Ground rent and service charges (leasehold) **Section 24 — mortgage interest restriction** Since April 2020, residential landlords cannot deduct mortgage interest as an expense. Instead, you receive a basic-rate (20%) tax credit equal to 20% of your mortgage interest costs. Higher and additional rate taxpayers therefore pay substantially more tax on rental income than before 2017. **The £1,000 property allowance** If your gross rental income is £1,000 or less, no tax is due and no return is needed. If income is between £1,000 and your gross rental receipts, you can claim the allowance instead of actual expenses — but only if it is more beneficial. **Worked example** Rental income £18,000; agent fees £1,800; insurance £600; repairs £1,200 = expenses £3,600. Mortgage interest £6,000. Taxable rental profit = £18,000 − £3,600 = £14,400. Tax at 40% = £5,760. Mortgage interest credit: £6,000 × 20% = £1,200. Net tax on rental = £4,560. **Reporting** Declare rental income on your Self Assessment tax return (SA105 property pages) if gross income exceeds £2,500/year.