Landlord tax: what you pay, what you can deduct, and what changed
Reviewed by Rob Webb, practising accountant since 2015 · Last reviewed September 2026 · Figures are for the 2026/27 tax yearReviewed by Rob Webb, practising accountant since 2015 · Last reviewed September 2026 · Figures are for the 2026/27 tax yearDo you rent out property? Rental income is taxable, but there's no National Insurance on it.
What catches landlords out? Mortgage interest. Since April 2020 you can't deduct it from residential rent. You get a 20% tax reduction instead, which makes your taxable income bigger and can push you into the higher rate.
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If you own residential property and let it out, the profit is taxable and you must tell HMRC. That applies whether the tenant is a stranger, a student or a relative paying a market rent, and whether the property is in your sole name or held jointly.
Two reliefs sit in front of it. The property allowance gives £1,000 of gross property income free of tax in 2026/27 — gross, before costs, and separate from the £1,000 trading allowance, so you can have both. And Rent a Room gives £7,500 a year tax free where you let furnished accommodation in your own home.
Beyond those, gov.uk refers to a level of property income at which you must report, but does not state the figure plainly. Rather than repeat a number we cannot source, the honest answer is to check your position with HMRC or use their online tool, and to register by 5 October following the end of the tax year if you need to file.
One piece of genuinely good news: no National Insurance is due on ordinary rental income, because letting property is not a trade. There is no Class 2 and no Class 4 on rental profit, whatever it comes to.
Because of the finance cost restriction, in force since 6 April 2020. Individual landlords of residential property get no deduction for mortgage interest, arrangement fees or other finance costs when calculating rental profit. Instead you get a basic rate tax reducer worth 20% of those costs.
The reducer is 20% of the lowest of three figures:
Anything you cannot relieve this year carries forward indefinitely, so it is not lost — it waits for a year with enough profit.
The consequence people miss is not the rate but the arithmetic. Because interest no longer reduces your rental profit, your total income is now stated at a higher figure than it used to be. That inflated income is what HMRC uses to decide which tax band you are in, and it is tested before the reducer is applied. So a landlord whose real economic position has not changed at all can be pushed across the £50,270 higher rate threshold, and can be affected by other income-based thresholds along the way — the High Income Child Benefit Charge, and the tapering of the personal allowance above £100,000.
A landlord with a £30,000 salary and one let property. Rents of £30,000 a year, £6,000 of allowable running costs, and £11,000 of mortgage interest.
| 2026/27 | |
|---|---|
| Salary | £30,000 |
| Gross rents received | £30,000 |
| Allowable property expenses (not interest) | £6,000 |
| Property profit | £24,000 |
| Total income (£30,000 + £24,000) | £54,000 |
| Less personal allowance | £12,570 |
| Taxable income | £41,430 |
| Basic rate: £37,700 at 20% | £7,540 |
| Higher rate: £3,730 at 40% | £1,492 |
| Income tax before the reducer | £9,032 |
| Less finance cost reducer: 20% of £11,000 | £2,200 |
| Income tax after the reducer | £6,832 |
| National Insurance on rental profit | £0 |
Now watch the restriction bite. Under the old rules the £11,000 of interest would have been deducted from rents, giving a property profit of £13,000 and total income of £43,000. Taxable income would have been £30,430, entirely within the basic rate band, and the tax would have been £6,086.
The same landlord, the same rents, the same mortgage — and £746 more tax. The reason is precisely the £3,730 that was dragged over £50,270 by counting rents gross: relieved at 40% going in and only 20% coming back, the difference is 20% of £3,730, which is £746.
Two practical points. The £6,832 is the tax on everything, so the Self Assessment bill is that figure less the tax already deducted from the salary through PAYE. And the reducer is applied to tax, not to income, so it cannot create a repayment on its own.
The dividing line is repair versus improvement. Putting something back as it was is a repair and deductible. Making it better or different is capital, and goes against any future capital gain instead.
| What you can claim | What to watch |
|---|---|
| Letting agent fees, tenant finding fees, inventory and referencing | Deductible in full. Keep the agent's annual statement; it shows gross rent, which is the figure that goes on your return. |
| Repairs and maintenance: repainting, fixing a boiler, replacing broken tiles, damp treatment | Like-for-like repairs only. A new extension, a first-time conservatory or an upgraded kitchen layout is capital. |
| Landlord insurance, buildings and contents, rent guarantee and legal cover | Fine. Your own home insurance is not a rental expense. |
| Safety and compliance: gas safety certificates, EICR electrical checks, EPCs, smoke and CO alarms | Certificates and testing are running costs. The first installation of a system that was not there before may be capital. |
| Ground rent, service charges and block management fees on leasehold flats | Deductible against the rents from that property. Major works levies funded through a service charge are often capital, not a repair. |
| Replacement of domestic items relief | Moveable items only — furniture, furnishings, appliances, kitchenware — for the tenant's exclusive use. Fixtures such as baths, boilers and fitted units do not qualify; those are usually repairs instead. |
| Mileage to the property for inspections, viewings and repairs | 55p a mile for the first 10,000 business miles in 2026/27, then 25p. Keep dates and reasons; routine "driving past" is not a business journey. |
| Accountancy fees, software, phone and admin costs of running the letting | Claim the business proportion of mixed-use costs and be able to explain the split. |
| Mortgage interest and finance costs | Not an expense at all. It goes through the 20% tax reducer instead — see the section above. |
On replacement of domestic items, the amount is the cost of a like-for-like replacement, or the cost of a broadly equivalent item where you have upgraded. You deduct anything you got for the old item, and you add delivery, installation and disposal costs.
The furnished holiday lettings regime was abolished for Income Tax and Capital Gains Tax from 6 April 2025. There is no longer a separate, more generous category for short-term holiday lets.
In practice that means a former FHL is taxed like any other property business. The finance cost restriction now applies to it, so mortgage interest on a holiday let gets the 20% reducer rather than a full deduction. Capital allowances on furniture and equipment are no longer available in the way they were, and replacement of domestic items relief applies instead. Profits from a former FHL no longer count as relevant UK earnings for pension contribution purposes, which matters if you were using holiday let income to support pension payments.
If you still run short-term lets, the income is ordinary property income now. The commercial case may still be strong; the tax case that used to sit behind it has gone.
Property held jointly by spouses or civil partners is taxed 50:50 by default, regardless of the actual ownership shares, unless you hold it in unequal shares and make a formal declaration to HMRC to be taxed on the true split. That declaration must reflect real beneficial ownership — you cannot simply allocate income to whoever pays less tax.
Joint owners who are not married or in a civil partnership are taxed on their actual entitlement to the income, so the split follows the underlying ownership.
Rent a Room gives you £7,500 a year tax free on furnished accommodation let in your own home, halved to £3,750 where the income is shared between two or more people. Below the threshold the relief is automatic and there is nothing to claim or report. Above it, you choose between paying tax on the excess over £7,500 or working out actual profit in the normal way. It is not available where the home has been divided into self-contained flats.
Yes, to most landlords eventually, and the timing depends on gross rents rather than profit.
Qualifying income is gross self-employment turnover plus gross property income added together, before expenses — one combined figure tested against one threshold. That catches people who assume a modest letting is too small to count: a plumber with £26,000 of turnover and £20,000 of rents has qualifying income of £46,000, not two separate small amounts. Employment income, pensions, dividends and partnership profit shares are excluded.
The landlord in the worked example has gross rents of exactly £30,000 and nothing else qualifying. That is not over £30,000, so they are not caught in April 2027 — they come in from April 2028 under the £20,000 test. A single rent increase changes that answer, which is why the gross figure is worth watching.
Once inside, you keep digital records in compatible software and send quarterly updates for periods ending 5 July, 5 October, 5 January and 5 April, due 7 August, 7 November, 7 February and 7 May. Each update is cumulative, restating the year to date rather than reporting the quarter alone. The final declaration remains due on 31 January. Digital records must be kept for at least five years after that 31 January deadline.
Two groups are permanently outside: anyone with qualifying income of £20,000 or below, and anyone without a National Insurance number.
If you let a room in your own home and the income is under £7,500, Rent a Room covers it automatically and there is nothing to do.
If you have gross property income of £1,000 or less, the property allowance covers it. And if you have one property, no mortgage, one tenant and a handful of receipts, the property pages of a Self Assessment return are short and HMRC's free online filing handles them perfectly well. Paying someone for that is optional, and we will tell you so.
Where an accountant earns the fee is where the finance cost restriction is biting, where you are close to a band threshold and the ordering of reliefs matters, where a portfolio is held jointly or across several properties, where the repair-or-improvement line is genuinely arguable, or where Making Tax Digital turns one annual return into four quarterly updates plus a final declaration.
No. Letting property is not a trade, so there is no Class 2 and no Class 4 on ordinary rental profit, regardless of the amount. This is why rental profit is taxed more lightly than trading profit of the same size.
No, and not even the interest as a straight deduction. Capital repayments were never deductible, and since April 2020 the interest gives a 20% basic rate tax reducer instead of a deduction. Landlords paying higher rate feel the difference most.
Yes, under replacement of domestic items relief, because a washing machine is a moveable appliance for the tenant's exclusive use. Claim the like-for-like cost, or the cost of a broadly equivalent item if you upgraded, less anything you got for the old one, plus delivery and disposal.
No. Baths, basins, boilers and fitted units are fixtures, which are specifically excluded from replacement of domestic items relief. A like-for-like replacement is usually treated as a repair and deductible on that basis; a significant upgrade is capital.
Property losses are carried forward and set against future profits of the same property business. They cannot normally be set against your salary or other income, so the relief comes later rather than now.
Only if that reflects genuine beneficial ownership. Spouses and civil partners are taxed 50:50 by default, and to be taxed on a different split you must actually hold the property in those shares and make a formal declaration to HMRC.
Filed Tax prepares landlord returns, applies the finance cost reducer correctly, and keeps the capital items recorded for when you sell. The first month is free. It is £25 a month after that, which covers all four Making Tax Digital quarterly updates, the year-end final declaration, unlimited questions and deadline reminders. Rob Webb reviews every return before it is filed.
Rob is a Certified Xero Advisor with a BSc from the University of Salford. Last reviewed September 2026 against GOV.UK guidance current at that date. This guide is general information, not personal tax advice. Figures are for the 2026/27 tax year and can change at each Budget — always confirm the current numbers on GOV.UK or ask us to check your situation.