# Tax on rental income in 2026/27: allowances, mortgage interest and the 2027 change

> Landlords who are individuals pay Income Tax on rental profit. This guide explains the £1,000 property allowance, allowable expenses, the mortgage…

- URL: https://centiview.com/uk-money/landlord-rental-income-tax-2026-27
- Published: 2026-10-18T02:38:00.000Z
- Figures checked: 2026-10-18
- Edited by David A
- Topic: Property & Renting (UK)
- Publisher: Centiview (Persie Ltd, London)
- General information only, not financial advice

Landlords who are individuals pay Income Tax on rental profit. This guide explains the £1,000 property allowance, allowable expenses, the mortgage interest tax reduction, when to tell HMRC, and the new property tax rates from April 2027.

## How rental income is taxed

If you rent out property in the UK as an individual, the profit is treated as income and added to your other income, such as pay or pensions, for the tax year. Rental income means the rent your tenants pay, plus any charges for extras such as furniture or services. The profit is the rent minus the day-to-day costs of running the property, which HMRC calls allowable expenses. For 2026/27 (6 April 2026 to 5 April 2027) in England, Wales and Northern Ireland, the Personal Allowance, the amount of income that is tax free, is £12,570, then 20% applies up to £50,270, 40% up to £125,140 and 45% above that. Scotland sets its own bands for most income, so Scottish taxpayers should check the Scottish rates on GOV.UK.

## Expenses, the property allowance and what you cannot deduct

Allowable expenses are costs of the day-to-day running of the property. GOV.UK lists examples such as letting agents' and accountants' fees, insurance, repairs and maintenance, utility bills, Council Tax and the cost of services like cleaning or gardening. Improvements that add something new, and the cost of buying the property, are capital costs and are not deducted from rent. Mortgage payments are treated separately, which is explained in the next section. As an alternative to deducting real expenses, individuals can use the property allowance: the first £1,000 of gross property income each year is tax free. The two routes cannot be combined, so with the allowance you deduct £1,000 and nothing else. If you own a property jointly, each owner gets their own £1,000 against their share of the rent.

- Gross property income of £1,000 or less: generally no need to tell HMRC or put it on a return, but keep records.
- Over £1,000 and up to £2,500 a year: contact HMRC.
- Over £2,500 after allowable expenses, or over £10,000 before expenses: report it on a Self Assessment return.
- The allowance cannot be used if you claim the mortgage interest tax reduction, or on income covered by the Rent a Room Scheme.

> **Key numbers** 2026/27: Personal Allowance £12,570. Property allowance £1,000 a year. Mortgage interest relief for residential landlords is a tax reduction at the basic rate, currently 20%. Register for Self Assessment by 5 October after the tax year the income began.

## Mortgage interest: the finance cost tax reduction

Since 6 April 2020, individual landlords with residential property can no longer subtract mortgage interest and other finance costs, such as loan fees, from rent when working out profit. Instead they get a tax reduction worked out as the basic rate, currently 20%, of the lowest of three amounts: the finance costs for the year (plus any carried forward), the property profits for the year, and adjusted total income, which is your income above the Personal Allowance, not counting savings and dividends. The reduction cannot create a refund, and any unused part is carried forward. Only interest counts, not loan repayments. Companies that pay Corporation Tax are treated differently, and can claim interest on property loans as an expense.

## A worked example

The figures here are illustrative and are not typical or advice. Suppose, for example, that in 2026/27 a landlord in England has a salary of £30,000, rent of £12,000, allowable expenses of £2,000 and mortgage interest of £4,000. Property profit is £12,000 minus £2,000, which is £10,000, because interest is not deducted. Total income is £40,000, and taxable income after the £12,570 allowance is £27,430. At 20% the tax before the reduction is £5,486. The reduction is 20% of the lowest of £4,000 (finance costs), £10,000 (profit) and £27,430 (adjusted total income), so 20% of £4,000, or £800. Tax is £5,486 minus £800, which is £4,686.

Now suppose the salary is £55,000 instead, with the same property figures. Total income is £65,000 and taxable income is £52,430. The basic rate band is £37,700 (£50,270 minus £12,570), so £37,700 is taxed at 20%, which is £7,540, and the remaining £14,730 at 40%, which is £5,892, giving £13,432. The same £800 reduction gives £12,632. Had the £4,000 of interest been deductible, taxable income would be £48,430 and tax £11,832, which is £800 less. So the restriction costs a higher-rate taxpayer more than a basic-rate one in this example, because the reduction is given at 20% while their rental profit would otherwise have been taxed at 40%.

## The change from 6 April 2027

The government has announced separate tax rates for property income from 6 April 2027: 22% basic, 42% higher and 47% additional, two percentage points above the current rates. The technical note on GOV.UK says the rates apply to England, Wales and Northern Ireland, that the Personal Allowance is used first against income that is not from property, savings or dividends, and that tax is then taken in the order of other income, property income, savings income and dividends. Relief for residential finance costs will be given as a reduction at the property basic rate of 22%, so £1,000 of finance costs would give a £220 reduction. In the example above, £4,000 of interest would give £880 rather than £800. The property allowance and the Rent a Room Scheme are unchanged. The note says the government will engage with the Scottish and Welsh governments about their ability to set property income rates.

## Who this applies to, and who it does not

This guide is for individuals, including joint owners, who let UK property and pay Income Tax. It does not cover companies, which pay Corporation Tax, landlords living abroad, who have separate rules, or income covered by the Rent a Room Scheme. It also does not cover Scottish rates in detail. Common mistakes include missing the 5 October registration date, treating improvements as repairs, deducting the whole mortgage payment, and claiming the allowance alongside expenses. If rental income was never reported, HMRC runs the Let Property Campaign, which lets people disclose unpaid tax from earlier years, with lower penalties than if HMRC finds the income first.

> **Who this affects** Individual landlords with UK rental income. Not companies, non-residents, or Rent a Room income.

## Where to get free help

HMRC publishes free landlord guidance on GOV.UK, and the Let Property Campaign page explains how to declare past income.

## Check before you act

Tax rules, rates and allowances change, and the 2027 property rates still depend on final legislation. It can be worth confirming every figure on the official pages linked below before relying on it. This guide was checked on 18 October 2026 and gives general information, not personal advice.

### Sources
- [GOV.UK, Income Tax when you rent out a property: working out your rental income](https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income)
- [GOV.UK, Changes to tax relief for residential landlords: how it is worked out](https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies)
- [GOV.UK, Renting out your property: paying tax and National Insurance](https://www.gov.uk/renting-out-a-property/paying-tax)
- [GOV.UK, Tax-free allowances on property and trading income](https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income)
- [GOV.UK, Change to tax rates for property, savings and dividend income: technical note](https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-and-dividend-income/change-to-tax-rates-for-property-savings-and-dividend-income-technical-note)
- [GOV.UK, Income Tax rates and Personal Allowances](https://www.gov.uk/income-tax-rates)