How rental income is taxed in 2026/27
If you let property as an individual, your rental profit is added to your other income and taxed at your normal income tax rates. There is no separate rate for property income in 2026/27: the profit uses up whatever is left of your personal allowance and basic rate band, then falls into the higher and additional rate bands. That is why the same rent can cost one landlord 20% and another 40% or more.
The calculator works out the extra tax your rental income causes, by calculating your income tax with and without the rental profit. That figure is what you need to set aside, whether you pay it through Self Assessment or through a PAYE tax code.
Working out rental profit
Start with the rent you received for the tax year (your share, if you own jointly). Then choose one of two methods:
- Actual expenses. Deduct costs incurred wholly and exclusively for the letting, such as letting agent and management fees, repairs and maintenance, landlord insurance, ground rent and service charges, utility bills and council tax you pay, and accountancy fees;
- The £1,000 property allowance. Deduct a flat £1,000 instead of any expenses. If your gross property income is £1,000 or less, it is fully covered and you do not need to tell HMRC about it.
You cannot deduct capital improvements, such as an extension, from rent. You also cannot use the property allowance and claim the mortgage interest tax reduction in the same year, so the allowance usually only suits landlords with low costs and no mortgage. The calculator checks both methods and tells you if the other one would cost less.
Mortgage interest: the 20% tax reduction
Since 2020/21, individual landlords of residential property cannot deduct mortgage interest or other finance costs when working out their profit. Instead, they get a tax reduction worth 20% of the lowest of three figures:
- Finance costs. This year's mortgage interest and loan costs, plus any unrelieved costs brought forward;
- Property profits. Your rental profit for the year, after any property losses brought forward;
- Adjusted total income. Your income other than savings and dividends, less your personal allowance.
When the reduction is limited by profits or adjusted total income, the unrelieved finance costs carry forward to the next year. The reduction cannot create a repayment. For basic rate taxpayers the rule usually makes little difference, but a higher rate landlord pays 40% on profit that includes the interest and only gets 20% back.
Worked example
A landlord earns a salary of £45,000. Their buy-to-let flat brings in £18,000 of rent in 2026/27, with £3,000 of allowable expenses and £7,000 of mortgage interest. They live in England.
| Step | Amount |
|---|---|
| Rental profit: £18,000 − £3,000 (interest not deducted) | £15,000 |
| Income tax on salary alone | £6,486 |
| Income tax on salary plus rental profit (£60,000) | £11,432 |
| Less 20% of £7,000 mortgage interest | −£1,400 |
| Extra tax because of the rental income | £3,546 |
Of the £15,000 profit, £5,270 is taxed at 20% and £9,730 at 40% because it crosses the higher rate threshold of £50,270. After the £3,000 of expenses, £7,000 of interest and £3,546 of tax, the landlord keeps £4,454 of the £18,000 rent.
Changes from April 2027
From 6 April 2027 property income gets its own income tax rates. Finance Act 2026 set them at 22%, 42% and 47% for 2027/28, and from that year the mortgage interest reduction is given at the property basic rate rather than 20%. Budget 2026, delivered on 28 October 2026, announced a further 2 percentage point rise on property and savings income from the same date, which would take the property rates to 24%, 44% and 49%; that rise is due to be legislated in Finance Bill 2026-27. These changes do not apply to rent received in 2026/27, which this calculator covers. Scotland and Wales will be able to set their own property rates.
What this calculator does not cover
- Property losses brought forward. These reduce profit and are not modelled;
- Rent-a-room relief. Letting a room in your own home has a separate £7,500 exemption;
- Furnished holiday lets. The special regime was abolished from April 2025;
- Companies, partnerships and trusts. Companies can still deduct interest and pay Corporation Tax instead;
- Non-resident landlords. Different collection rules apply;
- Selling a property. Gains are taxed separately; see the Capital Gains Tax calculator.
Getting help
Most landlords file a Self Assessment return each year, and many have joint ownership, several properties or a mix of residential and commercial lets that affect how relief is given. Our accountants for landlords prepare returns and check expense claims, and our property tax advisers can help you compare personal and company ownership before the 2027 rate changes. To see your full tax bill, try the Self Assessment calculator.