Rental income tax calculator for landlords, 2026/27

How much tax do landlords pay on rental income?

Your rental profit is added to your other income, such as salary, pension or self-employed profit, and taxed at your normal rates. There is no separate landlord rate in 2026/27. Profit is your rent less allowable expenses, such as letting agent fees, repairs, insurance and like-for-like replacement of furniture and appliances (GOV.UK: working out your rental income). The rates below are for England, Wales and Northern Ireland (GOV.UK: Income Tax rates).

The Personal Allowance falls by £1 for every £2 of adjusted net income over £100,000 and is nil at £125,140 (GOV.UK: income over £100,000). By our arithmetic, rental profit in that range costs 60p in the pound before any finance cost reduction.

How does the mortgage interest tax reduction work?

If you let residential property as an individual, you can't deduct mortgage interest or other finance costs from your rent. For 2026/27 you get a tax reduction instead, worth 20% of the lowest of three amounts (HMRC manual PIM2058):

1. your finance costs for the year plus any unrelieved costs brought forward;
2. your property profits, after any property losses brought forward;
3. your adjusted total income: income other than savings and dividends, less your Personal Allowance.

Anything not relieved because your profit or income was lower carries forward to the next tax year for the same property business. The reduction can't create a refund (GOV.UK: how it's worked out). Because relief is fixed at 20%, a higher rate landlord pays 40% on the profit but gets only 20% back on the interest. Property held in a company is not affected.

Worked example: a higher rate landlord

A landlord in England earns a £60,000 salary. Their share of the rent is £30,000, with £4,000 of expenses and £15,000 of mortgage interest.

• Rental profit: £30,000 − £4,000 = £26,000. The interest is not deducted.
• The salary already uses the basic rate band, so all £26,000 is taxed at 40%: £10,400.
• Finance cost reduction: 20% of the lowest of £15,000 (interest), £26,000 (profit) and £73,430 (income above the allowance) = £3,000.
• Extra tax on the letting: £10,400 − £3,000 = £7,400, an effective 28.46% of the rental profit.

The property made £11,000 in cash after expenses and interest, and £7,400 of that goes in tax, leaving £3,600. Mortgaged higher rate landlords feel the restriction most.

Should I use the £1,000 property allowance or my actual expenses?

Use whichever gives less tax. If your gross property income is over £1,000, you deduct either the £1,000 allowance or your actual expenses, never both, and the allowance can't be more than your rent, so it never creates a loss (GOV.UK: tax-free allowances on property income). If you claim it, you can't claim the finance cost reduction, so it rarely suits a landlord with a mortgage. It can't be used on Rent a Room income either. With £3,000 of rent and £200 of costs, the allowance leaves £2,000 taxable instead of £2,800.

Do Scottish landlords pay different rates?

Yes. Scottish taxpayers pay Scottish rates on rental profit, because it is non-savings, non-dividend income. Savings and dividends are still taxed at UK rates (GOV.UK: Scottish Income Tax).

The legislation sets the finance cost reduction at the basic rate. GOV.UK states no Scottish figure, so we use the UK basic rate of 20%.

How does Making Tax Digital affect landlords?

You have to use it once your qualifying income is over the threshold. That is your share of gross rents before expenses, plus any self-employed turnover, so £50,000 of rent split equally between two owners counts as £25,000 each (GOV.UK: qualifying income). Over £50,000 in 2024/25 meant starting on 6 April 2026, over £30,000 in 2025/26 means 6 April 2027, and over £20,000 in 2026/27 means 6 April 2028. There are no penalty points for late quarterly updates in 2026/27, but you must still send them (GOV.UK: Making Tax Digital penalties). Use our Making Tax Digital checker and read our guide to Making Tax Digital for Income Tax.

What this calculator doesn't cover

• Savings interest and dividends, which are taxed differently.
• Rental losses brought forward, overseas lettings, or more than one property business.
• Pension contributions and Gift Aid, which reduce adjusted net income and can restore Personal Allowance.
• Rent a Room income, commercial property and property held in a company.
• National Insurance, student loan repayments and the High Income Child Benefit Charge.
• Capital gains tax when you sell: try our capital gains tax calculator.
• Stamp duty when you buy in England or Northern Ireland: try our stamp duty calculator.

Our personal tax service prepares landlords' Self Assessment returns, tracks finance costs carried forward and plans for the 2027/28 changes. Every filing and payment date is in our tax deadlines calendar.