Tax on rental income
You are taxed on rental profit — rent received less allowable costs — at your marginal rate, on top of your other income, with no National Insurance. Mortgage interest is not an allowable cost: it is relieved separately as a 20% tax reducer. That single difference is why landlords who break even in cash can still owe tax.
The arithmetic looks simple and is not. Rent minus costs would be a reasonable definition of profit in any other business — but for landlords the biggest cost of all sits outside that subtraction.
The rule that changed everything
Mortgage interest used to come off rental income before tax was worked out. It does not any more. Instead you get a tax reduction worth 20% of the interest — capped at the lowest of your finance costs, your property profit, or your income above the personal allowance.
For a basic-rate taxpayer that lands in roughly the same place. For anyone paying higher rate — including people pushed into it by the rental income, since the full rent counts towards total income before the relief applies — it is materially worse.
See it on your own numbers
Rental income tax calculator
Mortgage interest is not deducted from rental income — it is relieved as a basic-rate reduction, which is why the answer changes with your other income. Estimate only.
What you can and cannot deduct
Allowable: letting agent and management fees, repairs that restore rather than improve, landlord insurance, ground rent and service charges, council tax and utilities where you pay them, safety certificates and licensing, accountancy fees, and travel to the property for genuine business reasons.
Not allowable as a deduction: mortgage capital repayments, mortgage interest (relieved separately, above), and improvements.
Improvements are not lost — they generally reduce the capital gain on sale. Which is the argument for keeping those invoices for as long as you own the property, and the reason a shoebox of receipts from 2014 is sometimes worth more than it looks.
Where landlords lose money without noticing
- Never claiming costs at all — the most common, and entirely self-inflicted.
- Treating improvements as repairs, which invites a challenge and loses the capital gains relief.
- Missing the split between joint owners, where a couple in different tax bands can legitimately hold in different proportions.
- Not recording losses, which quietly forfeits them.
- Forgetting the 60 days rule on sale, which is a separate return and a fast one.
Have the year done properly
Send us the rent, the costs and the mortgage statements. We will tell you the profit, the tax, and what you have not been claiming — often enough to cover the fee before we start.
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Free assessment first. If there is work to do, you get a fixed quote in writing before anything starts.
The rest of the landlord calendar
- 31 January — the return and the tax.
- 60 days from completion — reporting and paying capital gains tax on a UK residential property sale.
- Quarterly updates under Making Tax Digital, once your income crosses the threshold for your phase.
And if you live abroad, the non-resident landlord scheme sits on top of all of it. If rent has gone undeclared for years, the Let Property Campaign is the route back.
Questions people ask
Do I pay tax on rental income if the mortgage takes it all?
Usually yes, and this is the question we are asked most. Mortgage interest is not deducted from rental income — it is relieved as a 20% tax reducer. A landlord genuinely breaking even in cash can therefore owe real tax, and for higher-rate taxpayers the gap is substantial.
What can I actually deduct?
Letting agent and management fees, repairs that restore rather than improve, landlord insurance, ground rent and service charges, utilities and council tax where you pay them, safety certificates, accountancy fees, and travel for genuine business reasons.
What is the difference between a repair and an improvement?
A repair puts something back as it was; an improvement makes it better than it was. Replacing a broken boiler with a similar one is a repair. Adding an extension is not. Improvements are not lost — they usually reduce the capital gain when you sell, which is why those invoices are worth keeping for a decade.
Is rental income subject to National Insurance?
No. Ordinary property letting is not a trade, so no National Insurance arises — one of the few respects in which it is treated better than self-employment.
What if I make a loss?
Property losses are carried forward against future profits from the same UK property business. They are not generally set against your salary. Recording them on the return is what preserves them, so a loss-making year is still a year worth filing carefully.
Do I have to file if the rent is small?
Below the £1,000 property allowance, often not. Letting a room in your own home has its own scheme — see rent a room. Above those, the income belongs on a return.
Figures are for the tax year shown and change every April. They are general information, not advice — we check the current position for your circumstances before anything is filed.
Reviewed 19 October 2026.
Part of our work on landlords and property — if you want someone to take it off your hands, start with our landlord accountant page.