How rental income is taxed

Rental income from UK property is taxed as part of your total income each tax year. You pay tax on profit — gross rent minus allowable expenses — at your marginal rate of income tax (basic, higher, or additional rate).

You report rental profit on the property pages of your Self Assessment tax return. Profits and losses are calculated for your property business as a whole, not property by property — so a loss on one rental can offset a profit on another.

The £1,000 property allowance

If your gross rental income is £1,000 or less in a tax year, you usually do not need to declare it or pay tax on it. This is called the property allowance.

If your gross rental income is more than £1,000, you can either deduct your actual expenses or claim the £1,000 allowance — whichever gives you more relief. You cannot do both.

Section 24: the mortgage interest rule

Since 6 April 2020, individual landlords can no longer deduct mortgage interest from rental income as an expense. Instead, you receive a 20% basic-rate tax credit on the interest you pay.

Higher-rate and additional-rate taxpayers feel this most: before Section 24, mortgage interest reduced taxable profit at 40% or 45%; now the relief is capped at 20%. This is one reason many landlords have moved to limited company structures.

Section 24 does not apply to limited companies, furnished holiday lets, or commercial property.

What you report on your tax return

Total rent received in the tax year (6 April to 5 April)
Allowable expenses, broken down by category
Mortgage interest paid (entered separately as a finance cost for the Section 24 calculation)
Any rental losses brought forward from prior years

What if you make a rental loss?

A rental loss cannot be set against your other income (employment, self employment, etc.). It can only be carried forward and offset against future rental profits from the same property business.

Summary

Rental profit is added to your other income and taxed at your marginal rate
The £1,000 property allowance covers small rental income
Section 24 limits mortgage interest relief to 20% for individuals
Rental losses carry forward, not sideways

Key terms

Property allowance

A £1,000 tax-free allowance against gross property income. If you earn less than £1,000 from property in a year, you may not need to declare it.

Section 24

The finance cost restriction introduced from 2017. Individual landlords can no longer deduct mortgage interest from rental income, instead, they receive a 20% tax credit on it.

Rental income tax basics

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