If you rent out property in the UK, the rental profit is added to your other income and taxed at your marginal rate. This guide explains how to calculate your taxable rental profit, the expenses you can deduct, and the key restriction on mortgage interest relief that catches many landlords out.
The Property Allowance (£1,000)
If your total gross rental income is £1,000 or less per year, you do not need to declare it — the Property Allowance covers it automatically. Above £1,000, you must register for Self-Assessment and report the income. You can choose to use the £1,000 allowance instead of deducting actual expenses, but you cannot do both.
Calculating taxable rental profit
Taxable profit = gross rental income − allowable expenses. Common allowable expenses include:
- Letting agent fees and management costs
- Repairs and maintenance (not improvements)
- Insurance (buildings and landlord liability)
- Council tax and utility bills (if you pay them)
- Ground rent and service charges
- Accountancy fees
- Advertising for tenants
- Travel costs for property management visits
Mortgage interest restriction (Section 24)
Since April 2020, individual landlords can no longer deduct mortgage interest as an expense. Instead, you receive a tax credit at the basic rate (20%) on the interest paid. This means:
- Basic rate taxpayers: effectively no change — 20% relief on interest
- Higher rate taxpayers: you pay tax on the full rental income at 40%, but only get 20% relief on the interest — a real reduction in relief
- Additional rate taxpayers: pay 45% tax but get 20% credit — even worse
This restriction has made buy-to-let significantly less attractive for higher earners. It can also push landlords into higher tax bands because the full rental income (before interest) is added to their total income for band calculation purposes.
Replacement of domestic items
You can claim relief for replacing furniture and appliances in a rental property (the Replacement Domestic Items Relief). The cost of the new item minus the cost you received for the old item is deductible. Initial furnishing of a property is not claimable.
Capital Gains when you sell
When you sell a rental property, you pay Capital Gains Tax on the profit. The rate is 24% for higher/additional rate taxpayers and 18% for basic rate taxpayers (on the portion within the basic band). You must report and pay within 60 days of completion.
Estimate the tax on your rental income
Use the income tax calculator to add your rental profit to your salary and see how it affects your overall tax band and take-home pay.