Landlord Tax Explained: What You Pay on Rental Income (2025/26)

If you let out property, the tax can feel more complicated than it should — Income Tax on the rent, special rules for mortgage interest, and Capital Gains Tax when you sell. Here’s a clear overview of landlord tax in 2025/26, and where each piece fits.

Income Tax on your rental profit

The main tax landlords pay is Income Tax on rental profit — your rent minus your allowable expenses. Two things to know:

1. You’re taxed on profit, not turnover. A £15,000 rent with £5,000 of allowable costs is £10,000 of taxable profit.
2. Rental profit is added to your other income and taxed at your marginal rate — 20%, 40% or 45%. So a profitable portfolio can push you into a higher band.

There’s a £1,000 property allowance — if your rental income is below it, you usually don’t need to declare it. Above it, you report through Self Assessment. Our free rental income tax calculator estimates your bill.

The Section 24 mortgage rule

This is the big one that’s caught landlords out. You can no longer deduct mortgage interest as a normal expense. Instead, you get a 20% tax credit on it. For higher-rate taxpayers this means paying more tax than under the old rules — sometimes a lot more. We explain it fully in Section 24 explained.

Allowable expenses

You reduce your taxable profit by claiming allowable expenses — repairs, letting-agent fees, insurance, ground rent and more. The key distinction is revenue costs (deductible) versus capital improvements (not deductible, but may reduce CGT later). Full list in allowable expenses for landlords.

No National Insurance (usually)

Unlike self-employment, rental income is treated as investment income, so most landlords pay no National Insurance on it. That’s a small silver lining.

Capital Gains Tax when you sell

When you sell a rental property for more than you paid, you pay Capital Gains Tax on the gain, after your annual exempt amount. For 2025/26, residential property is taxed at 18% (basic-rate band) and 24% (higher), and you must report and pay within 60 days of completion. Your own home is normally exempt.

Personal or limited company?

Because of Section 24, some landlords — especially higher-rate taxpayers with mortgages — consider holding property through a limited company, where mortgage interest is fully deductible against Corporation Tax. It’s not right for everyone (there are costs and CGT/stamp duty implications to moving property in), so it needs proper modelling.

Get your landlord tax right

Between Section 24, allowable expenses, the 60-day CGT rule and Making Tax Digital on the horizon, landlord tax has more traps than most. Our accountants for landlords handle your property tax return, claim every expense, apply the mortgage rules correctly, and tell you honestly whether incorporating would help — so you pay the right tax and not a penny more.