UK rents rose 3.7% in the year to July 2026, taking the average to £1,393 a month, according to the Office for National Statistics. For landlords, that sounds like good news. But because of how rental profit is taxed, a rent rise is taxed on the full amount you receive, not the profit you keep after your mortgage. For many higher-rate landlords, more rent now means a disproportionately larger tax bill.
This explainer covers the latest ONS figures, why rising rents interact badly with the current tax rules, and the four decisions landlords are weighing up in response. It does not cover tenant law or arrears, only the tax consequences of rents going up.
Key Takeaways
- UK rents rose by 3.7% in the 12 months to July 2026, taking the average monthly rent to £1,393, according to the ONS figures released on 19 August 2026
- Rent inflation varied significantly across the UK, with the North East recording the highest annual increase at 6.3% and the South East the lowest at 2.9%
- Wales saw rents rise by 4.5%, while Scotland recorded a much lower increase of 1.7%
- Under Section 24, individual landlords cannot deduct mortgage interest from their rental income when calculating their taxable property income; instead, they receive a 20% tax credit for qualifying finance costs
- With Income Tax thresholds frozen until April 2031, rising rental income can push more landlords into the 40% higher rate tax band, even when their actual rental profits have not increased by the same amount
- For a higher rate landlord, rent and mortgage costs can rise at the same time without increasing their actual profit, yet their tax bill can still increase because mortgage interest is no longer deducted from rental income before tax is calculated
How Much Have UK Rents Risen By?
Private rents across the UK increased by 3.7% in the 12 months to July 2026, up from 3.3% in the year to June. The ONS attributes this acceleration mainly to London, where rent inflation in July was at its highest level since October 2025. House price growth, by contrast, cooled to 2% in the year to June 2026, so rents are pulling ahead of capital values.
The national and regional picture is uneven:
Area | Average Monthly Rent | Annual Growth (Recorded in July 2026) |
|---|---|---|
England | £1,451 | 3.8% |
Wales | £843 | 4.5% |
Scotland | £1,016 | 1.7% |
North East (Highest Rent Rise in England) | ≈ £783 | 6.3% |
South East (Lowest Rent Rise in England) | ≈ £1,419 | 2.9% |
UK Average | £1,393 | 3.7% |
|---|
Industry commentators, including global real estate consultants Knight Frank, link part of the rise to the Renters Rights Act 2025, which abolished Section 21 evictions and fixed-term tenancies and squeezed supply as some landlords left the sector. The ONS itself points to supply and demand rather than a single cause.
Why Rising Rents Can Cost You More in Tax Than You Keep
Rising rents can leave landlords with a surprisingly small share of the additional income because mortgage interest is not deducted from rental income before Income Tax is calculated. Since Section 24 fully took effect in 2020/21, individual landlords have instead received a basic rate (20%) tax credit for qualifying finance costs. HMRC’s Property Income Manual PIM2054 confirms that the rules restrict relief for residential finance costs to the basic rate.
So, if your rent increases while your mortgage interest remains high, you do not simply pay tax on the profit left after the mortgage. Your taxable property profit is calculated without deducting those finance costs, and the mortgage interest is dealt with separately through the tax reduction.
That matters when your income moves into the higher rate band. For example, if an increase in rental income adds £1,000 to your taxable income and that £1,000 falls within the 40% higher rate band, £400 of it could go towards Income Tax. You would therefore keep £600 of the additional income before considering the mortgage and any other costs.
The tax reduction for finance costs does not change that calculation. It is 20% of the relevant finance costs, subject to HMRC's rules and limits, and is applied against your Income Tax liability rather than deducted from your rental income.
The problem is compounded by frozen Income Tax thresholds. The £12,570 Personal Allowance and £50,270 higher rate threshold will remain unchanged until April 2031. As rents and other income rise, more income can therefore become taxable at higher rates, increasing the tax paid on additional rental income. This is fiscal drag.
So, the issue is not that the tax on the rent increase is necessarily greater than the increase itself. It is that rising rent can increase your taxable income faster than it increases the money you actually have left after mortgage costs and tax. For landlords affected by Section 24, that distinction can make rent increases far less valuable than they appear.
Worked Example: When a Rent Increase Pushes You Into the Higher Rate Band
Imagine you are a higher rate taxpayer with one rental property. You receive £18,000 a year in rent and have £3,000 of allowable running costs, leaving £15,000 of taxable property profit before mortgage interest. You also pay £8,000 in mortgage interest during the year.
Your mortgage interest does not reduce the £15,000 taxable property profit. Instead, you receive a 20% tax reduction on the qualifying £8,000 finance cost, worth up to £1,600, subject to the finance-cost relief rules.
Now suppose you increase the rent by £100 a month, taking annual rent to £19,200. Your allowable running costs remain £3,000, so your taxable property profit rises to £16,200.
That extra £1,200 of rent a year does not mean £1,200 of extra taxable profit after your mortgage. The mortgage interest is still dealt with separately through the finance cost tax reduction. If the additional £1,200 falls within your 40% tax band, it creates £480 of additional Income Tax before considering the separate finance-cost relief.
So, the landlord does not simply pocket the full £1,200 rent increase. £480 can go towards Income Tax, leaving only £720, before considering any additional costs associated with the property.
This is where frozen tax thresholds make the problem worse. If your other income and rental income rise over time while the £50,270 higher rate threshold remains frozen, an increasing proportion of your income can fall into the 40% band. The rent may be going up, but so can the proportion of each additional pound that goes to HMRC.
Conclusion: Here Are Your Options As Rents Rise
Rising rents can improve your rental income, but they can also increase your tax exposure. As your income grows, you have four main options to consider:
Stay in Your Personal Name
This may remain the simplest and most practical option if you are a basic rate taxpayer, have relatively low mortgage costs or do not plan to expand your portfolio. However, higher rental income can push you into the higher rate tax band, while Section 24 limits how much tax relief individual landlords receive for mortgage interest.
Consider Incorporating Your Property
A company can generally deduct qualifying mortgage interest as a business expense when calculating its taxable profits, rather than receiving the restricted finance cost tax reduction that applies to individual landlords. Corporation Tax is currently charged at 19% for profits up to £50,000 and 25% for profits above £250,000, with marginal relief between those limits. However, moving personally owned property into a company can create immediate tax costs. The transfer is generally treated as taking place at market value for CGT purposes and can also trigger SDLT. Incorporation Relief under section 162 of TCGA 1992 may defer CGT where the conditions are met, while specific partnership rules can affect the SDLT position. These rules are complex, so incorporation should be modelled before you transfer any property.
Consider Selling
If rising tax and financing costs have made a property less attractive, selling may be an option. For 2026/27, residential property gains are generally subject to 18% or 24% CGT, depending on your taxable income, with a £3,000 annual exempt amount. Where Capital Gains Tax (CGT) is due on the disposal of a UK residential property, it generally must be reported and paid within 60 days of completion. Non-UK residents have broader reporting obligations for UK property disposals.
Become MTD Ready
If you are a landlord with more than £50,000 of qualifying income, MTD for Income Tax became mandatory for you from 6 April 2026. You must keep digital records and submit quarterly updates. The threshold falls to £30,000 from 6 April 2027 and £20,000 from 6 April 2028.
Note:
From 6 April 2027, property income will be taxed at separate rates of 22%, 42% and 47%, while residential finance cost relief (tax credit) will rise to 22%. This makes it even more important for landlords to review their tax position and ownership structure now.
See Exactly What Rising Rents Do to Your Tax
Higher rent changes the maths on whether to keep letting personally or through a company. Rather than guess, use our free Individual vs Corporate Tax Calculator to compare your tax as an individual landlord versus a limited company in seconds.
FAQs
No. A rent rise does not automatically increase your tax bill, but it can increase the amount of rental income on which you are taxed. If your rent rises while your other allowable expenses stay the same, your taxable property income will generally rise as well. Whether that actually results in more tax depends on your wider Income Tax position, including whether the additional income falls into a higher tax band.
UK private rents rose by 3.7% in the 12 months to July 2026, taking the average monthly rent to £1,393, according to the latest ONS figures. This was up from annual growth of 3.3% in June and represented the highest annual rent inflation rate since December 2025.
You may have to pay Capital Gains Tax (CGT) on the taxable gain when you sell a rental property. Your taxable gain is generally based on the difference between what you paid for the property and what you sell it for, after taking account of allowable costs, losses and any applicable reliefs.
There is no single place that can objectively be described as the nicest and cheapest place to live in the UK. The answer depends on what you value, such as house prices, employment opportunities, transport, schools, amenities and access to the countryside.
If affordability is the priority, parts of the North East, North West and Yorkshire and the Humber generally offer lower housing costs than many parts of southern England. However, the cheapest location is not necessarily the best choice for every household. For a meaningful comparison, it is better to consider housing costs alongside wages, employment, transport and quality of life.
UK house prices are expected to rise over the medium term, but current forecasts suggest relatively moderate growth rather than a rapid boom. Savills' June 2026 forecast expects UK house prices to fall by 2% in 2026 but rise by 18.5% over the five years to 2030.
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