If you let out property in the UK, understanding rental income tax has never mattered more. The 2026/27 tax year is a genuine turning point for landlords: Making Tax Digital is now live for higher-earning landlords, and from April 2027 rental profits will be taxed at new, higher rates than other income for the first time.
This guide explains how tax on rental income works right now, what you can claim, and the two big changes every landlord should be planning for.
How Is Rental Income Taxed in 2026/27?
Rental income is taxed as property income. You pay Income Tax on your rental profit, which is your total rents received less allowable expenses, at your marginal rate: 20% in the basic rate band, 40% in the higher rate band and 45% in the additional rate band for 2026/27.
Rental profit is added to your other income, such as salary or self-employment profits, to determine which band it falls into. A landlord with a £40,000 salary and £15,000 of rental profit will find much of that rent taxed at 40%, because the salary has already used most of the basic rate band. If your gross rental income is £1,000 or less, the property allowance covers it entirely and there is nothing to report. To estimate your own position, try our rental income tax calculator. The cash basis is generally the default for individual landlords with property business receipts of £150,000 or less; where receipts exceed £150,000, the accruals basis is mandatory.
Rent a Room Relief
If you let furnished accommodation in your only or main home, Rent a Room Relief may allow up to £7,500 of gross receipts to be received tax-free each tax year. The limit is £3,750 per person if the income is shared.
What Expenses Can Landlords Claim?
You only pay tax on profit, so claiming every allowable expense matters. To qualify, deductible expenses must be incurred wholly and exclusively for the purposes of the rental property business. Deductible costs include:
Letting agent and management fees
Repairs and maintenance (genuine repairs, not improvements or extensions)
Buildings and contents insurance
Ground rent and service charges
Accountancy fees and advertising for tenants
The repairs versus improvements distinction catches many landlords out. Replacing a broken boiler like-for-like is a repair and deductible; installing a new kitchen extension is a capital improvement and is not, although it may reduce Capital Gains Tax when you sell.
The Section 24 Mortgage Interest Rule
Mortgage interest is the big exception. Since April 2020, individual landlords cannot deduct finance costs from rental income. Instead, you receive a tax credit worth 20% of your mortgage interest, regardless of your own tax rate.
For higher rate taxpayers this is a real cost: £6,000 of annual mortgage interest now attracts £1,200 of relief rather than the £2,400 a full deduction would have given. The rule also inflates your taxable income figure, because interest is no longer deducted before your total is calculated, which can push you into a higher band or affect things like the High Income Child Benefit Charge. Landlords letting through a limited company are outside Section 24 and can still deduct interest in full, which is one reason incorporation questions come up so often.
Making Tax Digital Is Now Live for Landlords
From 6 April 2026, Making Tax Digital for Income Tax became mandatory for landlords whose combined gross income from property and self-employment exceeds £50,000. Note that the test is gross income, the rent you collect before any expenses, not your profit.
For the 2026/27 tax year, the first quarterly update covered 6 April to 5 July 2026 for most customers, or 1 April to 30 June where calendar update periods were used, and was due by 7 August 2026. If you were required to comply and have not yet submitted it, you should do so promptly. Affected landlords must keep digital records, submit quarterly updates to HMRC through compatible software, and file a final declaration by 31 January. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028, so most landlords will be brought into the system over the next two years. If your records currently live in a spreadsheet or a folder of receipts, now is the time to get organised. Our bookkeeping team sets landlords up on MTD-compatible software and can manage the quarterly submissions for you.
Higher Rates Are Coming from April 2027
The Autumn 2025 Budget announced that from 6 April 2027, rental profits will be taxed at separate property income rates set 2 percentage points above the normal bands: 22% basic, 42% higher and 47% additional. For the first time, rental income will be taxed more heavily than wages or trading profits at every level. The Section 24 credit rises to 22% alongside, which softens the blow only slightly for mortgaged landlords.
There is a planning window this year. Depending on your circumstances, it may be worth reviewing the timing of income and major expenditure, how ownership is split between spouses, or whether incorporation now stacks up. None of these is a one-size-fits-all answer, and moves like transferring property into a company carry their own tax costs, so take advice before acting.
Selling a Rental Property: Capital Gains Tax Basics
When you sell a rental property, Capital Gains Tax applies to the gain above the £3,000 annual exempt amount, at 18% within the basic rate band and 24% above it. The gain must be reported and the tax paid within 60 days of completion, a tight deadline that catches out many landlords. Purchase costs, selling costs and qualifying improvements all reduce the gain, and if you are buying rather than selling, our stamp duty costs calculator shows the up-front costs including the additional property surcharge.
How Taylors LLP Can Help
Between MTD, Section 24 and the new rates arriving in April 2027, letting property is now a tax-heavy business, and the cost of getting it wrong is rising. As experienced accountants in Finchley working with landlords across North London, we prepare landlord tax returns, maximise allowable expenses, handle MTD compliance, and model whether your portfolio is better held personally or through a company. Our taxation services team can review your position well ahead of the 2027 changes.
This article is based on tax rules for the tax year beginning 6 April 2026 and is intended as general guidance only, not personal tax advice. Rates and thresholds can change, and the right approach depends on your individual circumstances. Contact us for help.
