Rental profit is added to your salary and taxed at your top rate of income tax. Your employer's payroll knows nothing about it, so unless the rent is very small you must tell HMRC yourself, usually by registering for Self Assessment by 5 October after the end of the tax year in which the letting started. The rent can push you into the 40% band, into the High Income Child Benefit Charge or towards the £100,000 personal allowance taper, and letting your former home has capital gains tax consequences for when you eventually sell.
Do you need to tell HMRC?
Many people become landlords by accident, after moving in with a partner or relocating for work. The tax rules apply from the first month of rent.
- Gross rent of £1,000 or less in the tax year: covered by the property allowance. Nothing to report.
- Gross rent over £1,000, profit up to £2,500: HMRC's current guidance says you can contact them instead of filing a return, and they will normally collect the tax by adjusting your PAYE code.
- Profit over £2,500, or gross rent over £10,000: you must file a Self Assessment return.
A whole flat let at market rent will almost always fall in the last group. If you have never filed a return, the deadline to register is 5 October following the tax year, so a letting that began in 2026/27 must be registered by 5 October 2027, with the return and the tax due by 31 January 2028. Profit here means rent less allowable costs such as letting agent fees, repairs, insurance and service charges. Mortgage interest is not deducted; instead you get a tax credit at 20% of the interest.
A common mistake is assuming that because the rent only covers the mortgage, there is nothing to declare. The capital part of the repayments is not a cost for tax, and the interest only gives the 20% credit, so a flat that feels cash neutral can still show a taxable profit.
How rental profit is taxed on top of your salary
Your salary uses up the personal allowance and the basic rate band first, and the rental profit sits on top. For 2026/27 in England, Wales and Northern Ireland, the personal allowance is £12,570, the basic rate band is £37,700 and the 40% rate starts at £50,270 of total income. Scottish taxpayers use the Scottish rates and bands on both salary and rent. No National Insurance is charged on ordinary rental profit.
Worked example. Priya earns £45,000 and makes a rental profit of £12,000, giving total income of £57,000.
| Step | Amount |
|---|---|
| Salary after personal allowance (£45,000 less £12,570), taxed at 20% through PAYE | £32,430 |
| Basic rate band left for the rent (£37,700 less £32,430) | £5,270 |
| Rent taxed at 20%: £5,270 × 20% | £1,054 |
| Rent taxed at 40%: £6,730 × 40% | £2,692 |
| Tax on the rental profit | £3,746 |
That is an effective rate of about 31% on the rent, even though Priya thinks of herself as a basic rate taxpayer. Because more than £1,000 is due through Self Assessment and less than 80% of her total tax is collected at source, HMRC will also ask for payments on account: in her first January she would pay the £3,746 plus a first advance payment of £1,873 towards the next year.
From April 2027 rental profit will be taxed at 22%, 42% and 47% in England and Northern Ireland, which would raise Priya's figure to £3,986. The Welsh and Scottish Parliaments can set their own property income rates from 2027/28, so taxpayers there should check the rates set for them. We explain that change in our article on the new property rates.
Thresholds the rent can push you over
- High Income Child Benefit Charge: if you or your partner claim Child Benefit and the higher earner's adjusted net income exceeds £60,000, 1% of the benefit is clawed back for every £200 above that, so all of it goes at £80,000. Rental profit counts. On a £55,000 salary, a £12,000 profit takes income to £67,000 and claws back 35% of the benefit.
- Personal allowance taper: above £100,000 of adjusted net income, the allowance is reduced by £1 for every £2, and it is gone at £125,140. Rent on top of a high salary can create an effective 60% rate in that band.
Pension contributions reduce adjusted net income and can bring you back under both thresholds. Our high earners page covers the options.
Collecting the tax through your PAYE code
Paying through your tax code spreads the cost, but it has limits. HMRC will only code out a Self Assessment balance of under £3,000, and only if you file online by 30 December (or on paper by 31 October). HMRC can also put an estimate of your rental profit into your code for the current year, but the estimate is often wrong, and filing a return still settles the real figure. A code change does not replace the duty to register.
Owning the flat with a spouse or partner
Where a married couple or civil partners own a let property jointly, the rent is taxed 50:50 by default, whatever the deeds say. If you actually own it in unequal shares as tenants in common, you can both sign Form 17 so that each is taxed on their real share. It only takes effect from the date of the declaration, must reach HMRC within 60 days and cannot be backdated. Unmarried co-owners are taxed on the share of profit each is entitled to. Moving more of the income to a lower-earning spouse can save tax, but it needs a genuine transfer of ownership, so take advice before changing title.
Letting your former home: capital gains tax later
When you eventually sell, private residence relief covers the years you lived there plus the final 9 months of ownership, whether or not you were living there by then. The rest of the gain is taxable at 18% or 24% after the £3,000 annual exempt amount. Since 6 April 2020, lettings relief (up to £40,000) is only available if you lived in the property at the same time as your tenant, so it will not help most people who moved out. Any tax due on a UK home must be reported and paid within 60 days of completion. Our guide to letting your former home explains how the relief is worked out.
Two non-tax points that matter
Mortgage: a residential mortgage usually requires the lender's consent to let. Letting without it can breach the mortgage terms, and lenders often charge a fee or a higher rate. Tell your insurer too. Making Tax Digital: landlords and sole traders whose combined gross property and self-employed income for 2024/25 exceeded £50,000 have had to use Making Tax Digital since April 2026. Those over £30,000 for 2025/26 must use it from April 2027, and the test is £20,000 of 2026/27 income for April 2028. Salary does not count, but gross rent does, before expenses. See our guide to who is in Making Tax Digital.
What to do now
- Check whether you need to register for Self Assessment, and diary 5 October after the first tax year of letting.
- Keep a simple record of rent received and every cost, including mortgage interest statements.
- Work out where the rent takes your total income: 40%, £60,000 and £100,000 are the lines to watch.
- If you own the flat with a spouse in unequal shares, consider Form 17 now, as it cannot be backdated.
- Record your purchase price, improvement costs and the dates you lived there, for the future CGT calculation.
- If you have rent from earlier years that you have not declared, HMRC's Let Property Campaign is a disclosure route with lower penalties than if HMRC finds it first.
The 31 January deadline is the next one to plan for. Our personal tax service and landlords page explain how we help. If you are letting a property alongside a job and want a clear view of the tax, book a consultation.
This article is general information about UK tax, based on the law and HMRC practice at the date shown above. It is not advice, and reading it does not make you our client. Tax rules change and their effect depends on your circumstances, so please speak to us before acting on it.