Rent from UK property is taxed as the profit of a single UK property business under Part 3 of the Income Tax (Trading and Other Income) Act 2005: all your rents and related receipts, less allowable expenses, pooled across every property you let in your own name. The profit is added to your other income and, for 2026 to 2027, taxed at the normal income tax rates for where you live. From 6 April 2027 separate property rates of 22%, 42% and 47% are due to apply in England, Wales and Northern Ireland.

What counts as a property business?

Section 264 of ITTOIA 2005 defines a UK property business as every activity for generating income from property in the UK. HMRC’s Property Income Manual at PIM1020 makes three practical points:

  • All UK lettings are one business. It does not matter how many properties you own or what kind they are. Expenses on one property can be set against rent from another, and a loss on one is absorbed by profits on the others automatically.
  • Overseas lettings are a separate business. The legislation does not combine UK and overseas property, so their profits and losses stay apart.
  • Different legal capacities are different businesses. Property you own personally, your share of a partnership’s lettings and property you hold as a trustee are each separate, and a loss in one cannot be set against a profit in another.

Using a letting agent does not change this; you carry on the business through the agent. Nor does the amount of time you spend on it. PIM1051 notes that the courts have held rental income is very unlikely to be trading income, even if letting takes up all your working time, with hotels and guesthouses the usual exception.

Which receipts count as rental income?

HMRC’s landlord guidance says rental income includes the rent itself and any payments for the use of furniture or for services you provide, such as cleaning communal areas, hot water, heating and repairs. PIM1051 lists other receipts that belong in the same business, including:

  • ground rents and rentcharges
  • premiums received on the grant of certain short leases (PIM1200 onwards)
  • payments for letting others use the property, such as a film crew paying to film in a house
  • grants towards deductible running costs such as repairs
  • insurance pay outs under policies covering non payment of rent
  • refunds of expenses that were previously deducted

Receipts in kind count as well as cash, and a one off letting is taxed as if it were part of a business. PIM2040 adds that a tenant’s payment for maintenance or repair work the lease does not require them to carry out is treated as rent, so you cannot simply net it off against the repair bill.

How is the taxable profit worked out?

Property profits are calculated in the same way as trading profits. The steps are to add up all the rental income, add up all the allowable expenses and take one from the other.

Cash basis or accruals. PIM1092 explains that since 2017 to 2018 the cash basis is the default for property businesses run by individuals and partnerships, so rent counts when it is received and costs when they are paid. Section 271A ITTOIA requires accruals accounting instead where the business is run by a company, LLP or trustees, where cash basis receipts exceed £150,000, or where you elect for it within one year of the filing date. Spouses taxed in equal shares on a jointly owned property must use the same basis. Our page on cash basis and accruals compares the two.

Expenses. A cost is deductible if it is wholly and exclusively for the letting business and not capital. The main categories are set out in our guide to allowable expenses for landlords, with separate pages on repairs and improvements and replacing furniture and appliances.

Mortgage interest on homes. For residential lettings by individuals, finance costs are not deducted from rent at all. Instead you receive a tax reduction at the basic rate, worked out under sections 274A and 274AA ITTOIA and explained at PIM2058. Any amount not relieved is carried forward. See landlord mortgage interest relief.

The £1,000 property allowance. Instead of claiming expenses you can deduct the property allowance, which suits landlords with small receipts and few costs.

Lets below market rent. If you let to a friend or relative on uncommercial terms, HMRC’s guidance limits expenses for that property to the rent received, so it cannot create a loss.

Who pays the tax on a jointly owned property?

Under section 271 ITTOIA the person liable is the person receiving or entitled to the profits. HMRC’s guidance applies this as follows:

  • Married couples and civil partners who live together are usually taxed in equal shares. If they own the property in unequal shares and are entitled to the income in those shares, they can be taxed on that basis by sending HMRC a declaration of beneficial interests on Form 17.
  • Other joint owners, such as friends or a parent and child, are usually taxed on their share of ownership unless they agree a different split.

Your share of a jointly owned property is part of your own property business, not a separate one.

How are rental profits taxed alongside other income?

Rental profit is added to your salary, pension, self employed profits and other income. The Personal Allowance and tax bands then apply to the total. For 2026 to 2027 the gov.uk rates for taxpayers outside Scotland are:

Band Taxable income Rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate Over £125,140 45%

Rental profits can push you into a higher band or reduce your Personal Allowance once adjusted net income passes £100,000 (see Personal Allowance tapering). Scottish taxpayers use the Scottish bands. Property income does not attract National Insurance, which is one of the reasons the government gave in its Budget 2025 policy paper for introducing separate property rates.

That paper says that from 6 April 2027 property income will have its own basic, higher and additional rates of 22%, 42% and 47% in England, Wales and Northern Ireland, and that reliefs and allowances will be set against property, savings and dividend income only after other income. Scotland and Wales are to be given powers to set their own property rates.

How does that work in practice?

Illustration only, 2026 to 2027 rates, taxpayer in England. Priya earns a salary of £40,000. She lets a flat for £18,000 a year, pays £4,000 of allowable expenses and £6,000 of mortgage interest.

  • Rental profit: £18,000 less £4,000 = £14,000. The interest is not deducted.
  • Total income: £54,000. Taxable after the Personal Allowance: £41,430.
  • Tax: £37,700 at 20% = £7,540, plus £3,730 at 40% = £1,492, total £9,032.
  • Finance cost reduction: £6,000 at 20% = £1,200, giving £7,832.

Tax on the salary alone would be £5,486, collected through PAYE, so the letting adds £2,346 to Priya’s bill, payable through Self Assessment.

What happens if the business makes a loss?

PIM4210 explains that a property business loss is carried forward automatically and set against future profits of the same property business, under sections 118 and 119 of the Income Tax Act 2007. It cannot normally be set against salary or other income; the limited exceptions involve excess capital allowances and certain agricultural expenses. HMRC’s guidance adds that losses carried forward are usually lost when the business ends, although if you start letting again within 3 years it may be the same business, depending on the facts.

How and when do you report it?

HMRC’s guidance says the first £1,000 of property income is covered by the property allowance. If income is between £1,000 and £2,500 you contact HMRC; if it is more than £2,500 after expenses or £10,000 before expenses you must complete a Self Assessment return. If you do not normally file one, register by 5 October after the end of the tax year. Tax is paid by 31 January, and records must be kept for at least 5 years after the 31 January filing deadline.

Making Tax Digital for Income Tax now applies to many landlords. Those with qualifying self employment and property income over £50,000 in 2024 to 2025 had to start from 6 April 2026; the threshold is £30,000 for 2025 to 2026, meaning a start from 6 April 2027, and £20,000 for 2026 to 2027, meaning a start from 6 April 2028. See Making Tax Digital for Income Tax. Landlords with undeclared income from earlier years can come forward through the Let Property Campaign.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.