Property income
Property income is the taxable income you make from letting a rental property or residential property to a tenant. HMRC treats this as a UK “property business”, so you calculate your rental profit each tax year by adding up rental receipts and subtracting allowable expenses, then report it, usually through Self Assessment.
A key headline is the property allowance. The first £1,000 of gross property income can be tax-free if you choose to use the allowance instead of deducting expenses. If you claim the allowance, you cannot also claim allowable expenses for that same income stream.
Allowable expenses typically include day-to-day running costs incurred wholly and exclusively for the letting. For example letting agent fees, landlord insurance, and many repairs that restore something to its previous condition. But improvements work that adds something new or upgrades the property are usually treated differently from repairs for tax purposes, so keep invoices and a clear description of the work.
Mortgage interest is the common trap. If you own personally, finance costs on residential lettings are not deducted in full from profits. Instead you generally get a basic-rate (20%) tax reduction calculated under the “finance cost restriction” rules. This means your taxable property income can be higher than your cash profit, especially with an interest only mortgage.
From 1 May 2026 in England, the Renters’ Rights Act changes the cashflow backdrop. It limits rent in advance, bans rental bidding, and standardises rent rises through Section 13 notice with constraints. None of that changes the tax definition of property income, but it can affect how predictably you can grow rent and manage rent arrears, which in turn affects taxable profit and planning.
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