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Tax on a Rental Property UK: Complete 2025/26 Guide
Rental income tax, Section 24, limited company vs personal ownership, CGT on sale, and Scotland's tax bands.
21 Feb 2026 · Money Meister · 15 min read
Quick Answer
- ▶Rental income is taxed as Income Tax at your marginal rate (20%, 40%, or 45% in England; up to 48% in Scotland) via Self Assessment - National Insurance does not apply.
- ▶Allowable expenses (repairs, agent fees, insurance, etc.) reduce your taxable rental profit. Mortgage interest is subject to the Section 24 restriction - only a 20% tax credit is available.
- ▶When you sell, Capital Gains Tax applies at 18% (basic rate) or 24% (higher rate) - with only a £3,000 Annual Exempt Amount and a 60-day reporting deadline.
What Taxes Do Landlords Pay in the UK?
As a UK landlord you potentially face four different taxes depending on what you own, how you own it, and what you do with it:
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Income Tax
Paid annually on your net rental profit via Self Assessment. Your marginal rate applies - the same rate as your employment or other income.
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Capital Gains Tax (CGT)
Paid when you sell a rental property for a gain. Residential property CGT rates are 18% or 24% and must be reported within 60 days of completion.
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Stamp Duty Land Tax (SDLT)
Paid on purchase. Buy-to-let and second properties are subject to a 5% SDLT surcharge on top of standard rates in England and Northern Ireland.
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Corporation Tax (Ltd Co only)
If you hold property in a limited company, the company pays Corporation Tax (19–25%) on profits instead of Income Tax. Extracting profits then incurs a second layer of personal tax.
Good news: No National Insurance on rental income
Rental income is classified as unearned investment income. Unlike employment or self-employment income, it is entirely exempt from National Insurance contributions - a meaningful tax advantage.
Calculating Your Rental Profit
You are taxed on your net rental profit, not your gross rental income. The formula is straightforward:
Allowable Expenses
- ✓Letting agent and management fees
- ✓Landlord insurance (buildings & contents)
- ✓Repairs and maintenance (not improvements)
- ✓Mortgage interest (20% tax credit only - see Section 24)
- ✓Ground rent and service charges
- ✓Council tax and utility bills (if paid by landlord)
- ✓Accountancy fees related to the rental
- ✓Advertising and tenant-finding costs
- ✓Professional property services
- ✓Travel to inspect or repair the property
Not Allowable
- ✗Capital improvements (e.g. extensions, loft conversions)
- ✗Mortgage capital repayments
- ✗Personal expenses unrelated to the rental
- ✗Costs incurred before the first letting
- ✗Fines or penalties
- ✗Depreciation of structure
Repairs vs Improvements
Replacing a like-for-like boiler is a repair (allowable). Upgrading to a newer model with more features can be an improvement (not allowable). The distinction matters and HMRC scrutinises this closely.
Scotland
Scottish landlords follow exactly the same rules for allowable expenses - the difference lies only in the income tax rates applied to the resulting profit (covered in the next section).
Income Tax on Rental Profits - England, Wales & Northern Ireland (2025/26)
Rental profit is added to your other income (salary, pension, dividends, etc.) and taxed at your marginal rate. There is no separate "rental income tax rate" - it stacks on top of everything else.
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 - £50,270 | 20% |
| Higher Rate | £50,271 - £125,140 | 40% |
| Additional Rate | Above £125,140 | 45% |
Note: the Personal Allowance tapers by £1 for every £2 earned above £100,000, creating an effective 60% marginal rate between £100,000 and £125,140.
Worked Example: £15,000 Rental Profit
Basic-Rate Landlord
Salary: £30,000 | Rental profit: £15,000 | Total income: £45,000
Higher-Rate Landlord
Salary: £55,000 | Rental profit: £15,000 | Total income: £70,000
Scotland: Different Income Tax Rates Apply
Scottish taxpayers are subject to Scottish Income Tax rates set by the Scottish Parliament. Rental income is taxed using these rates rather than the UK-wide bands above. Scotland has six bands, and the higher rate kicks in at a lower threshold than in England - meaning many Scottish landlords pay more tax at mid-range incomes.
| Band | Income Range | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter Rate | £12,571 - £14,876 | 19% |
| Basic Rate | £14,877 - £26,561 | 20% |
| Intermediate Rate | £26,562 - £43,662 | 21% |
| Higher Rate | £43,663 - £75,000 | 42% |
| Advanced Rate | £75,001 - £125,140 | 45% |
| Top Rate | Above £125,140 | 48% |
Source: GOV.UK - Renting out a property: paying tax
Scottish Higher Rate starts at £43,663 vs £50,271 in England
A Scottish landlord earning £55,000 in total income would pay 42% on rental profits that a counterpart in England would pay 40% on - and the rate differential only widens above £75,000. This significantly affects whether a limited company structure makes sense sooner for Scottish landlords.
Section 24: The Mortgage Interest Restriction
Section 24 of the Finance Act 2015 is the single most impactful tax change for individual landlords in recent decades. Phased in from April 2017 and fully effective since 2020/21, it replaced full mortgage interest deductibility with a flat 20% tax credit.
Before April 2017
You could deduct 100% of mortgage interest directly from rental income before calculating profit.
After April 2020 (now)
Mortgage interest is not deducted from income. Instead you get a 20% tax credit applied after calculating tax on the gross profit.
Section 24 can create a "phantom profit" tax charge
In extreme cases - particularly where mortgage interest is close to or exceeds rent - landlords can find themselves taxed on a nominal profit they never actually received in cash. This is the core argument for considering a limited company structure (see below).
Scotland - Section 24 applies identically
Section 24 is UK-wide legislation and applies to Scottish landlords in exactly the same way. However, because Scottish higher and advanced rates are higher (42% and 45%), the effective cost of the restriction is even greater for Scottish higher-rate taxpayers than for their English counterparts.
Limited Company vs Personal Ownership: Which Is Better for Tax?
The Section 24 restriction has pushed many landlords to consider holding properties inside a limited company ("Special Purpose Vehicle" or SPV). The tax maths can be compelling - but the practical costs are real. Here is a side-by-side comparison.
Personal Ownership
Tax on profits
Income Tax at marginal rate - 20%, 40%, 45% (or up to 48% in Scotland)
Mortgage interest
20% tax credit only (Section 24) - not a full deduction
Extraction of profit
No second layer of tax - profits are simply yours
Mortgage availability
Standard residential BTL rates - widest product choice
Administration
Self Assessment only - simple and low cost
CGT on sale
18% basic / 24% higher - same as ltd company
Best for
Basic-rate taxpayers; 1-2 properties; simple portfolios
Limited Company (SPV)
Tax on profits
Corporation Tax: 19% (profits £50k) - 25% (profits £250k); tapered between
Mortgage interest
Fully deductible as a business expense - Section 24 does not apply
Extraction of profit
Salary + dividends - each taxed again personally; div tax 8.75%-39.35%
Mortgage availability
Company BTL mortgages are fewer & typically 0.5-1.5% more expensive
Administration
Annual accounts, Corporation Tax return, possible audit - higher cost
CGT on sale
Company pays Corp Tax on gain, not CGT; extracting sale proceeds adds another layer
Best for
Higher/additional-rate taxpayers; 3+ properties; leaving profits in company to reinvest
Key Metric: The Break-Even Point
Whether a limited company saves tax depends primarily on whether you extract profits immediately or retain them in the company. If you need the money for personal living expenses, the double-tax on extraction often wipes out the Corporation Tax saving. If you reinvest profits into more properties within the company, the tax deferral creates a genuine compound advantage over time.
Ltd company likely wins if you...
- Pay 40% or 45% income tax (or 42-48% in Scotland)
- Plan to grow a portfolio of 3+ properties
- Can leave profits inside the company
- Have significant mortgage debt (Section 24 saves you the most)
Personal ownership likely wins if you...
- Pay 20% income tax (basic rate)
- Own 1-2 properties with modest mortgages
- Need to extract most profits for income
- Want simplicity and lower mortgage rates
Scotland - the crossover point arrives earlier
Because Scotland's Higher Rate kicks in at £43,663 (vs £50,271 in England), Scottish landlords earning above that threshold are already paying 42% income tax on rental profits. The gap between 42% personal tax and 19-25% Corporation Tax is wider, which means the limited company calculation becomes more compelling at a lower income level for Scottish landlords. The dividend tax on extraction remains the same UK-wide, however.
Transferring existing properties into a company is costly
Moving personally-owned properties into a limited company triggers a deemed sale at market value - meaning you pay CGT on the gain and full SDLT (including the 5% surcharge) on the transfer. For most landlords, this makes transferring existing properties prohibitively expensive. Limited company structures are most efficient when purchasing new properties.
7 Ways to Reduce Your Rental Property Tax Bill
Use a spouse's or partner's allowances
If your partner pays a lower rate of income tax, transferring a share of the property to them (through a Deed of Trust / Form 17) can shift rental income into their lower tax band. This requires genuine joint ownership and HMRC Form 17 to apportion income in line with beneficial ownership.
Claim every allowable expense
Many landlords under-claim. Ensure you are deducting letting agent fees, insurance, all qualifying repair costs, accountant fees, and travel costs to the property. A professional landlord accountant typically saves more than their fee.
Make pension contributions
Pension contributions reduce your adjusted net income. This can pull you back below a tax threshold (e.g. below the £100k personal allowance taper), reducing your effective marginal rate on rental profits and recovering the personal allowance.
Time repairs strategically
Allowable repair costs reduce your rental profit in the year they are incurred. Where possible, timing significant maintenance in a high-income year maximises the tax relief. Ensure all repairs are genuinely like-for-like replacements, not improvements.
Use a limited company for new acquisitions
If you pay higher-rate tax and plan to grow your portfolio, buying future properties through an SPV limited company avoids Section 24 restrictions and locks in the lower Corporation Tax rate on profits you intend to reinvest.
Utilise the £1,000 Property Income Allowance
If your rental income is very small (e.g. subletting a room occasionally), the £1,000 Property Income Allowance means the first £1,000 of gross income is tax-free each year - with no need to track expenses. Claiming it means you cannot also deduct expenses, so it only makes sense for low-income scenarios.
Time the sale of properties carefully
CGT is calculated in the tax year of completion. If you can complete a sale in a year where your total income is lower (e.g. after retirement), you may pay 18% rather than 24% CGT - saving thousands on a large gain.
Capital Gains Tax When You Sell a Rental Property (2025/26)
When you sell a rental property for more than you paid for it (plus allowable costs), the gain is subject to Capital Gains Tax. The rules for residential property are distinct from those for other assets.
| Taxpayer | CGT Rate (Residential) |
|---|---|
| Basic-rate taxpayer (after adding the gain to income) | 18% |
| Higher or Additional-rate taxpayer | 24% |
Key CGT Facts for Landlords
- •Annual Exempt Amount: £3,000 per person (2025/26)
- •60-day reporting deadline from completion date
- •Joint owners each get their own CGT allowance
- •Allowable costs: solicitor fees, estate agency, capital improvements
- •Losses can be offset against other gains in the same tax year
Private Residence Relief (PRR)
If you ever lived in the property as your main residence, PRR may reduce your chargeable gain. You receive relief for the months you occupied the property as your main home, plus the final 9 months of ownership regardless of occupation. This can materially reduce the CGT on a property that was once your home.
Scotland - CGT is the same UK-wide
Capital Gains Tax is a reserved matter handled by HMRC - it is not devolved to Scotland. Scottish landlords pay exactly the same CGT rates on property sales as English landlords. The 18%/24% rates and the 60-day reporting rule apply equally.
Self Assessment: How to Report Rental Income to HMRC
Rental income does not come with PAYE - it is your responsibility to declare it through a Self Assessment tax return each year. HMRC will not send you a reminder unless you are already registered.
Register for Self Assessment
You must register if your gross rental income exceeds £1,000 in a tax year. Register online at GOV.UK. For a new landlord, register by 5 October after the end of the first tax year in which you received rental income.
Complete Your Return
Report total gross rental income, list all allowable expenses, calculate your net profit. Include mortgage interest separately (for the 20% tax credit calculation). File online by 31 January each year.
Pay Your Tax Bill
Pay the tax owed by 31 January. If your bill exceeds £1,000, you will also need to make Payments on Account (50% advance payments) in January and July. Late payment attracts interest of 7.75% p.a.
Key Deadlines
5 October
Register for Self Assessment (new filers)
31 October
Deadline for paper tax returns
31 January
Online return deadline & tax payment due
Scotland - same HMRC Self Assessment process
Self Assessment is administered by HMRC for the whole UK, including Scotland. Scottish taxpayers file the same SA100 return (with the SA105 Land and Property supplement). HMRC automatically applies Scottish Income Tax rates to Scottish taxpayers and passes the relevant revenue to the Scottish Government. All the same deadlines apply.
Frequently Asked Questions
Do I pay tax on all rental income in the UK?
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No. Every landlord gets a £1,000 Property Income Allowance each year. Above that, you pay Income Tax on your net rental profit - that is, gross rental income minus allowable expenses such as letting agent fees, repairs, insurance, and mortgage interest relief (subject to Section 24 restrictions).
Can I deduct my mortgage payments from rental income?
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Not in full. Under Section 24, introduced from April 2017 and fully in force since 2020/21, you can no longer deduct mortgage interest directly from rental income. Instead, you receive a 20% basic-rate tax credit on your finance costs. This means higher-rate and additional-rate taxpayers now pay significantly more tax on leveraged rental properties.
What is Section 24 and how does it affect landlords?
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Section 24 of the Finance Act 2015 restricts the tax relief landlords in personal ownership can claim on mortgage interest. Before 2017, landlords could deduct 100% of mortgage interest as an expense. Now they receive only a 20% tax credit. This effectively means higher-rate taxpayers lose 20p of relief on every £1 of mortgage interest, and in some cases landlords can be taxed on a 'profit' that does not exist in cash terms.
Is a limited company better for buy-to-let tax?
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It depends on your situation. A limited company can deduct 100% of mortgage interest and pays Corporation Tax (19–25%) rather than Income Tax (up to 45%). However, extracting profits as salary or dividends creates a second layer of tax. For higher-rate taxpayers building a portfolio of 3+ properties, a limited company often becomes advantageous. For basic-rate taxpayers with one or two properties, the extra admin and higher mortgage rates often outweigh the savings.
Do Scottish landlords pay more tax on rental income?
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Often yes, at mid-range incomes. Scotland has six income tax bands compared to three in England and Wales. The Scottish Higher Rate of 42% starts at just £43,663 (versus £50,271 in England), and the Advanced Rate of 45% applies above £75,000 before the Top Rate of 48% kicks in above £125,140. For Scottish landlords with rental profits that push them into the higher bands, the tax burden can be noticeably heavier than for equivalent landlords south of the border.
What Capital Gains Tax do I pay when I sell a rental property?
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For the 2025/26 tax year, residential property CGT rates are 18% for basic-rate taxpayers and 24% for higher or additional-rate taxpayers. The Annual Exempt Amount is £3,000. You must report and pay CGT on a residential property sale within 60 days of completion via HMRC's online service. CGT is a UK-wide tax - the same rates apply in Scotland.
Do I pay National Insurance on rental income?
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No. Rental income is classified as unearned (investment) income, not trading income, so it is not subject to National Insurance contributions. This is one of the key tax advantages of property investment compared to employment or self-employment income.
When do I need to submit a Self Assessment tax return for rental income?
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You must register for Self Assessment and submit a return if your gross rental income exceeds £1,000 in a tax year. The deadlines are 31 October for paper returns and 31 January (following the end of the tax year) for online returns. You must also pay any tax owed by 31 January. Late filing and payment attract automatic penalties.
Sources: GOV.UK - Renting out a property: paying tax, HMRC Self Assessment guidance, Finance Act 2015 (Section 24), Scottish Government income tax rates 2025/26, HMRC Capital Gains Tax guidance for residential property, HMRC Property Income Manual. Tax rules are as of the 2025/26 tax year and may change. This guide does not constitute tax advice - consult a qualified accountant for your specific situation.
Related reading
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Written by Darren
Founder & editor at Money Meister. Writes and reviews UK tax, mortgage, and budgeting guidance from primary sources (GOV.UK, HMRC, ONS).
Reviewed against current HMRC, FCA, ONS and Ofgem guidance before publication. How we research and review.