Rental profits count towards your adjusted net income. If your salary plus rental profit puts you above £100,000, every additional pound of rent is taxed at up to 60% — and Section 24 makes it even worse for mortgaged properties.
Most landlords know they pay income tax on rental profits. What many do not realise is how rental income interacts with the personal allowance taper above £100,000.
If your salary is £95,000 and your net rental profit is £15,000, your adjusted net income is £110,000. That puts you squarely in the 60% tax trap. Every pound of rental profit between £100,000 and £125,140 is effectively taxed at 60%.
That is 40% higher rate tax, plus 20% from losing £1 of personal allowance for every £2 over £100,000. On that £10,000 of rental profit above £100k, you are losing £6,000 — not the £4,000 you might expect.
Rental income does not attract National Insurance (unlike employment or self-employment income). But it still counts in full towards your adjusted net income — which is what triggers the personal allowance taper.
Since April 2020, landlords cannot deduct mortgage interest from rental income. Instead, you receive a 20% tax credit on your finance costs. For higher and additional rate taxpayers, this is a significant penalty.
Suppose you have £20,000 rental income and £10,000 mortgage interest. Under the old rules, your taxable rental profit was £10,000. Now, your taxable rental profit is £20,000 — taxed at 40% (£8,000) — but you receive a 20% tax credit on the interest (£2,000). Your net tax bill is £6,000 instead of the £4,000 it would have been.
In the 60% trap zone, the numbers are even worse. The rental income pushes your adjusted net income up, triggering the personal allowance taper, while Section 24 limits your relief to just 20%.
While mortgage interest is restricted, you can still deduct all other allowable expenses from gross rental income before calculating your profit:
Letting agent fees — typically 8–12% of rent collected
Repairs and maintenance — fixing boilers, replastering, repainting (not improvements)
Insurance — buildings, contents, landlord liability, rent guarantee
Ground rent and service charges — for leasehold properties
Accountancy fees — for preparing rental accounts and tax returns
Travel costs — journeys to inspect or manage properties (at 45p/mile)
Advertising — costs to find new tenants
Replacement of domestic items — replacing like-for-like (furniture, appliances, kitchenware)
Every £1 of deductible expenses reduces your taxable rental profit — which reduces your adjusted net income. If you are in the 60% trap, a £1,000 expense you missed could be saving you £600 in tax.
Keep records of every expense. HMRC can enquire into rental accounts going back several years. A well-maintained spreadsheet of expenses could save you thousands at tax time.
If your gross rental income is under £1,000, you can use the £1,000 property income allowance instead of claiming expenses. The income is simply tax-free.
For most landlords earning above £100k this is irrelevant — your rental income will far exceed £1,000. But if you have a small side income from renting a parking space or storage, it is worth knowing about.
The single most powerful strategy for landlords caught in the 60% trap is pension contributions. Personal pension contributions reduce your adjusted net income, which restores your personal allowance.
If your salary plus rental profits puts you at £115,000, a £15,000 pension contribution brings your adjusted net income to £100,000 — escaping the trap entirely. That £15,000 contribution effectively costs you just £6,000 after the tax saving (60% relief in the trap zone).
You can contribute up to £60,000 per year to your pension (or your net relevant earnings, whichever is lower). If you have unused allowance from previous years, you can carry it forward. See our pension tax relief guide for details.
If you are employed, salary sacrifice reduces your gross salary before tax AND National Insurance. Combining this with rental income management can be powerful.
For example, if you earn £110,000 salary with £10,000 rental profit (ANI: £120,000), a £20,000 salary sacrifice brings your ANI to £100,000 — saving you income tax AND employer/employee NI on the sacrificed amount. Use our pension modeller to see the exact savings.
If your gross rental income exceeds £2,500, you must file a self-assessment tax return — even if your expenses mean you make no profit. If your total income is above £100,000, self-assessment is required regardless.
The deadline is 31 January following the end of the tax year (31 January 2027 for 2025/26). Late filing triggers an automatic £100 penalty, with further penalties accruing after 3 months.
If you are earning over £100k with rental income, do not estimate — calculate. Our tax calculator handles rental income, mortgage interest (Section 24), property expenses, and the 60% trap interaction. The trap analysis tool shows exactly how much your rental income is costing you and the optimal pension contribution to escape.
The strategies tool will recommend the best combination of pension contributions, salary sacrifice, and other reliefs for your specific situation.