Tax on savings interest and rental income (2026/27)

Allowances for savings interest

Interest from ISAs and NS&I Premium Bond prizes is tax-free and does not use these allowances. Savings income uses UK rates and bands even for Scottish taxpayers.

Savings examples

Banks pay interest gross. HMRC normally collects tax under £10,000 of interest through your tax code using data from banks; above £10,000 you must file Self Assessment.

• Salary £15,000, interest £3,000: non-savings income is £2,430 over the personal allowance, so the starting rate band is £2,570. £2,570 at 0%, remaining £430 covered by the £1,000 allowance. Tax: £0.
• Salary £45,000, interest £2,000: £1,000 allowance, £1,000 x 20% = £200.
• Salary £60,000, interest £2,000: £500 allowance, £1,500 x 40% = £600.

Rental income basics

Rental profit = rent received - allowable expenses. Allowable expenses include letting agent fees, repairs, insurance, ground rent and service charges, utilities and council tax you pay, accountancy, and replacing domestic items like-for-like. Improvements and the purchase price are not deductible (they reduce Capital Gains Tax later).

If your gross property income is £1,000 or less, the property allowance makes it tax-free. Above that, you can deduct £1,000 instead of actual expenses, which suits lodgers or occasional lets with low costs. Rent a Room relief gives £7,500 tax-free for letting furnished rooms in your own home.

Section 24: the mortgage interest credit

Individual landlords of residential property cannot deduct mortgage interest or other finance costs. Instead they get a tax credit of 20% of those costs, limited to 20% of the lowest of finance costs, property profits, or adjusted total income above the personal allowance. Unused finance costs carry forward. Higher-rate landlords therefore get only basic-rate relief. Companies and furnished holiday lets before April 2025 were outside these rules; the FHL regime was abolished from April 2025.

Rental profit example

Anna earns £40,000 salary and lets a flat for £18,000 a year, with £3,000 of expenses and £6,000 of mortgage interest.

• Taxable rental profit: £18,000 - £3,000 = £15,000 (interest not deducted)
• Total income £55,000; tax on the rental slice: £10,270 x 20% + £4,730 x 40% = £3,946
• Less finance cost credit: £6,000 x 20% = £1,200
• Tax on rental income: £2,746, against a real cash profit of £9,000

What changes from April 2027

From 6 April 2027 separate property income rates of 22%, 42% and 47% apply in England and Northern Ireland (Scotland and Wales can set their own), with the finance cost credit rising to 22%. Savings income rates rise to 22%, 42% and 47% across the UK from the same date. 2026/27 is the last year at the current rates.

Savings: where the allowances run out

Most basic-rate savers pay nothing, but higher interest rates mean a mid-sized savings balance can now produce more than the £1,000 allowance.

A basic-rate taxpayer on £25,000 with £3,000 of interest pays £400.00 on the excess over the personal savings allowance. Moving that money into a cash ISA, up to £20,000 a year, would make all of the interest tax-free. Budget 2025 confirmed the cash ISA limit will be £12,000 within the overall £20,000 from April 2027 (savers over 65 can still put up to £20,000 in cash), and savings tax rates rise to 22%, 42% and 47% from the same date. That makes the remaining months of 2026/27 a natural point to review where savings are held.

Interest on a child's savings is normally the child's income, with their own allowances. But if the money came from a parent and produces more than £100 of income a year (counted separately for each parent), all of that income is taxed as the parent's. Junior ISAs are outside this rule, with a yearly limit of £9,000.

Joint ownership: who pays the tax on rent

Rental income from property owned jointly by a married couple or civil partners who live together is usually taxed 50:50, whatever the actual shares.

If you own the property in unequal shares and are entitled to the income in those shares, you can be taxed on the real split by both declaring your beneficial interests to HMRC on Form 17. This can save tax where one partner pays basic rate and the other higher rate. Unmarried joint owners are taxed on their actual share unless they agree a different split.

Landlord expenses people miss

• Replacement of domestic items relief: the cost of replacing furniture, appliances and furnishings like-for-like in a residential let. The first purchase when you furnish the property is not covered.
• Costs between tenancies, such as cleaning, advertising and safety certificates.
• Travel to the property for management or repairs, at actual cost or using simplified mileage rates.
• Landlord and contents insurance, and legal fees for lets of a year or less or for renewing a lease of less than 50 years.
• Cash basis, where you record income and expenses when money changes hands, is the simpler way to work out property profits for most individual landlords with straightforward affairs.

Landlords living abroad

If you live abroad for 6 months or more a year, you are a "non-resident landlord" for HMRC purposes, even if you are UK resident for tax. Your letting agent, or your tenant if there is no agent and the rent is more than £100 a week, must deduct basic-rate tax from the rent and pay it to HMRC, unless HMRC approves you to receive rent in full.

To receive rent gross, apply on form NRL1i. HMRC only approves the application if your UK tax affairs are up to date. You still declare the income on a Self Assessment return either way.