Tax on Rental Income: A Complete Guide for UK Landlords

Rental income is taxable in the UK. If you earn money from letting a property, you must report the income to HMRC and pay tax on your profit after deducting allowable expenses. 

The rules around how much you owe, what you can deduct, and when you need to file have changed considerably over recent years.

Whether you let a single buy-to-let flat or manage a small portfolio, understanding how tax on rental income works will save you money and keep you on the right side of HMRC.

Key points

• Rent isn't the only taxable income for landlords 🏠
  HMRC also taxes income from furnished holiday lets, charges for furniture or equipment, additional services provided to tenants, and any security deposit amounts you keep at the end of a tenancy.
• You can choose the most tax-efficient way to claim expenses 💷
  If your gross rental income exceeds £1,000, you can either claim the Property Income Allowance or deduct your actual allowable expenses. Comparing both options can help reduce your taxable profit and potentially lower your tax bill.
• Deductible property costs can lower your bill 🧾
  Landlords can deduct expenses such as letting agent fees, insurance, repairs, service charges, utility bills, and accountancy fees. However, improvements that add value to the property are not deductible against rental income.
• It's time to prepare for Making Tax Digital requirements 🖥️
  Landlords with gross rental income above £50,000 must comply with Making Tax Digital for Income Tax from April 2026, with lower income thresholds being introduced in later years. Keeping digital records now can make future quarterly reporting much easier.
• Use ANNA to simplify rental income tax management 🚀
  ANNA helps landlords stay organised by handling the admin automatically in the background, so you always have an accurate picture of your income, your expenses, and your tax bill.

What counts as rental income

Rental income covers more than just the monthly rent. HMRC considers all of the following taxable:

• Rent payments from residential or commercial tenants
• Income from letting furnished holiday accommodation
• Payments for the use of furniture or equipment within the let property
• Payments for additional services you provide alongside the tenancy, such as cleaning communal areas

Money received as a security deposit isn't considered income when you receive it. However, if you keep any of it at the end of the tenancy, that amount becomes taxable for that year.

The Property Income Allowance (2026/27)

The Property Income Allowance is a useful starting point for anyone letting out a property. For 2026/27, the allowance is £1,000 per tax year. If your total gross rental income (before any expenses) is £1,000 or less, you don't need to report it to HMRC or pay any tax on it.

If your income is above £1,000, you have a choice to make. You can either claim the £1,000 allowance against your income or deduct your actual allowable expenses. 

It's a good idea to work out which option gives you a lower taxable profit. For landlords with very low expenses, the allowance may be the simpler option.

🧠 Good to know: 

The Property Income Allowance is separate from the Rent-a-Room Scheme, which only applies to income from letting a room in your own home. The Rent-a-Room threshold is £7,500 per year for 2026/27.

How your taxable rental profit is calculated

The basic principle is simple: your rental profit is your total rental income minus your allowable expenses for the year. Allowable expenses are costs you've incurred wholly and exclusively for the purpose of renting out the property.

In practice, that typically includes:

• Letting agent fees and property management charges
• Buildings and contents insurance
• Maintenance and repairs (but not improvements)
• Ground rent and service charges
• Utility bills you pay as the landlord
• Council tax when the property is empty between tenancies
• Accountancy fees related to your rental income
• Advertising costs to find tenants

The difference between repairs and improvements

There's an important distinction between repairs and improvements: 

• A repair is the restoration of an item to its original working condition, such as replacing a broken boiler with an equivalent model. That's deductible in the year you pay for it.
• An improvement, on the other hand, is a change that adds value or upgrades the property beyond its original state. For example, fitting a better boiler or converting a loft would count as capital improvements. 

Improvements aren't deductible against your rental income, but the money you've put into them isn't lost either. You can add them to the property's original cost when you eventually calculate any Capital Gains Tax on a sale.

Income Tax rates on rental profit (2026/27)

Your rental profit isn't taxed on its own. HMRC adds it to your other income, like salary, dividends, and pension, and your total is taxed at your marginal rate. 

The Income Tax rates for England, Wales, and Northern Ireland in 2026/27 are:

So if you're employed and earning £40,000 a year, and your rental profit adds another £15,000, part of that rental profit will be taxed at 40% because it pushes your total income above the £50,270 threshold.

🧠 Good to know: 

If you're based in Scotland, you'll be subject to Scottish Income Tax, which has different thresholds and rates above the basic rate.

Furnished Holiday Lettings: What changed in 2025

If you let a property as a holiday home, the rules changed significantly from 6 April 2025, when the Furnished Holiday Lettings (FHL) tax regime was abolished. Holiday lets are now treated the same way as ordinary residential lets.

In practice, this means:

• You can't claim capital allowances on the full cost of items like furniture and equipment in a single year anymore
• You can no longer claim pension contribution relief based on FHL 
• You can't separate holiday let losses; they're now pooled with the rest of your property income

If you previously benefited from the FHL rules, review your 2026/27 tax position with an accountant to understand the full impact of the new regime on your bill.

What to do if your property now runs at a loss

If your allowable expenses exceed your rental income for the year, you've made a rental loss. Unlike some other types of losses, you can't use a rental loss to reduce your other income, such as your salary or pension. Instead, it gets carried forward and offset against future property profits.

Reporting your rental income through Self Assessment

If your gross rental income (before expenses) exceeds £1,000 in a tax year, you'll typically need to register for and file a Self Assessment. 

This applies even if your expenses bring your profit down to zero or into a loss, because HMRC still needs the declared figures on record.

Here are the key dates for this tax year:

If your Self Assessment tax bill for a given year is over £1,000, HMRC will ask you to make two advance payments towards the following year's bill, one in January and one in July. 

This means your first-year Self Assessment filing can feel more expensive than expected, because you're effectively paying this year's tax and a chunk of next year's at the same time.

💡 Did you know?

ANNA's Self Assessment filing is free for 2026/27. ANNA prepares and submits your return directly to HMRC without spreadsheets or manual calculations, and even if you've already registered with another provider, ANNA will refund the filing fee when you switch.

Landlords and Making Tax Digital for Income Tax (MTD for ITSA)

From April 2026, landlords with gross rental income above £50,000 are required to keep digital records and send quarterly updates to HMRC through MTD-compatible software, replacing the single annual Self Assessment return they were used to.

If that threshold doesn't apply to you yet, it'll likely reach you soon. HMRC is rolling out the requirement in stages: the £50,000 threshold drops to £30,000 from April 2027 and is expected to fall further to £20,000 from April 2028. That will bring the majority of active landlords into MTD within the next two years.

The biggest change under MTD for ITSA is the introduction of quarterly updates.

Each quarterly update is a summary of your rental income and expenses for that three-month period, sent to HMRC through your software. 

Here are the four submission windows across the tax year:

After the four quarterly updates, you'll need to submit a final end-of-year declaration to confirm your figures are accurate and settle any tax owed. The process is more frequent than the old annual return, but each submission is straightforward if your records are kept up to date throughout the year.

🧠 Good to know: 

ANNA's Auto Accountant categorises every transaction automatically and keeps your records MTD-ready throughout the year, so when a quarterly deadline arrives, you’ll already have your figures. 

How ANNA helps with tax on rental income

Managing rental income tax involves keeping accurate records, tracking expenses, and staying on top of HMRC deadlines. 

ANNA helps simplify the process by automating much of the admin, giving you a clearer view of your rental finances throughout the year. 

Here's how ANNA helps:

• Free 2026/27 Self Assessment filing: ANNA prepares and files your personal tax return to HMRC without spreadsheets, confusion, or manual calculations – and it's free. If you've already registered with another provider, ANNA will refund the filing fee when you switch.
• Built-in UK business account: With ANNA's integrated business account, you can keep your rental income separate from personal spending so you always have a clear, accurate view of what's coming in and what's going out.
• Automated bookkeeping: Every rent payment and every deductible expense is recorded and categorised, so your records are ready when you need them.
• Smart tax pots: ANNA can automatically set aside a portion of your rental income to cover your Self Assessment bill, so you have the money ready when your January payment is due.
• Real-time tax estimates: As your rental profit builds through the year, ANNA shows you an ongoing estimate of your likely Income Tax bill so there are no surprises later.
• Smart expense tracking: Every cost is separated and categorised, helping ensure you don't miss any deductible expenses when working out your profit.
• Deadline reminders: ANNA tracks your key Self Assessment dates and reminds you before they arrive.
• 24/7 expert support: ANNA's support team is available around the clock whenever you need guidance.

Get started with ANNA and make your next landlord Self Assessment the easiest one yet.