Rental income is taxed like any other income at your marginal rate, but only after you deduct the costs of running the property and any allowances you qualify for.
If you let out a property, the rent you receive is taxable income, but the headline rent is not what you pay tax on. You are taxed on the profit: rent and other receipts minus the allowable costs of running the property. With Making Tax Digital arriving for landlords from April 2026, how you record that income is about to change significantly.
Rental income is more than just the monthly rent. It includes any payments tenants make to you, such as charges for services, use of furniture, or money kept from a deposit to cover damage. If you let multiple UK properties, HMRC treats them as a single UK property business, so profits and losses across them are pooled.
From the rent you deduct allowable expenses: letting agent and management fees, repairs and maintenance (but not improvements), landlord insurance, ground rent and service charges, and accountancy fees. Our rental income calculator totals these for you.
Suppose Olu, a higher-rate taxpayer, lets a flat for £14,400 a year (£1,200 a month). His allowable expenses are: agent fees £1,440, repairs £900, insurance £300, and other costs £360, totalling £3,000. He also pays mortgage interest of £6,000.
His taxable rental profit is £14,400 minus £3,000 = £11,400.
As a higher-rate taxpayer, the tax on that profit is £11,400 × 40% = £4,560.
But the mortgage interest gives a tax credit at the basic rate of 20%:
£6,000 × 20% = £1,200 credit.
So Olu's final tax on the rental is £4,560 minus £1,200 = £3,360.
Under the old rules (pre-2020), Olu could have deducted the full £6,000 interest before tax, saving £2,400. The switch to a 20% credit is why mortgaged higher-rate landlords now pay considerably more.
If your total rental income is £1,000 or less, the property allowance means you may not need to declare it at all. If income is higher, you can choose to deduct the £1,000 allowance instead of your actual expenses when that is more generous, which suits landlords with very low running costs.
The big change ahead is Making Tax Digital for Income Tax. From April 2026, landlords (and sole traders) with qualifying income above £50,000 must keep digital records and submit quarterly updates to HMRC through compatible software, with the £30,000 band following in April 2027. This replaces the once-a-year scramble with a rolling, digital process, which is exactly what TapTax is built for.
The end of full mortgage interest relief reshaped landlord economics. Track every allowable cost, claim the right allowance, and get ready for quarterly MTD reporting from April 2026.
TapTax connects to your bank, categorises expenses automatically, and submits quarterly updates to HMRC. Free plan, no card required.
