Rental Income Tax UK 2026/27: Section 24, Expenses & MTD
Being a landlord has become a far more demanding tax exercise. Full mortgage-interest relief is gone, the Furnished Holiday Let regime has been abolished, and Making Tax Digital is starting to force quarterly digital reporting. This guide explains how rental income is taxed in 2026/27: how your rental profit is taxed at your income tax rate, the Section 24 mortgage-interest restriction that gives only a 20% tax credit, the allowable expenses you can still deduct, the SA105 property pages, the abolition of the FHL regime, and the arrival of MTD for Income Tax. Worked examples show why a higher-rate, mortgaged landlord can pay far more than they expect.
You are taxed on your rental profit — rent received less allowable expenses — not on the gross rent. That profit is added to your other income and taxed at your marginal rate: 20%, 40% or 45% (or the Scottish rates). There is no special, lower landlord rate.
The first £1,000 of property income is covered by the property allowance, so very small lettings can be tax-free. Above that, you either deduct the £1,000 allowance or your actual expenses — whichever produces less tax. Estimate the bill with the income tax calculator.
The Section 24 Mortgage-Interest Restriction
Section 24 is the rule that has hurt mortgaged landlords most. You can no longer deduct mortgage interest as an expense before tax. Instead, finance costs attract only a basic-rate (20%) tax reduction applied to your final bill.
For a higher-rate landlord this means 20% relief on interest instead of 40%. Because the full rent (less other expenses) is taxed before the credit, the restriction can push you into a higher band and, on a heavily geared property, leave you paying tax even where the real cash profit is thin. Companies are unaffected — they still deduct interest in full. See the Section 24 deep-dive guide.
Allowable Expenses
Allowable expenses are costs incurred wholly and exclusively for the letting:
Letting agent and management fees
Property insurance
Repairs and maintenance (not improvements)
Ground rent, service charges, and any council tax or utilities you pay
Accountancy and professional fees
Replacement of domestic items relief (furniture, white goods)
Mortgage interest is not in this list — it goes through the Section 24 credit instead. Capital costs such as an extension or the purchase price are not deductible against income, but may reduce a future Capital Gains Tax bill.
The SA105 Property Pages
Rental income is reported on the SA105 UK property supplementary page, filed with your main Self Assessment return. You generally need it once gross rents exceed £1,000 or profits are taxable.
Register for Self Assessment by 5 October following your first year of rental income, file online by 31 January, and pay any tax by the same date. Good year-round records of rent and expenses make the SA105 straightforward.
The Furnished Holiday Let Regime Is Abolished
From April 2025 the Furnished Holiday Lettings regime was abolished, so for 2026/27 a holiday let is taxed like any other rental property. The old advantages are gone:
Mortgage interest now falls under the Section 24 restriction
The income no longer counts as relevant earnings for pension contributions
Capital allowances on furniture give way to replacement of domestic items relief
CGT reliefs such as Business Asset Disposal Relief and rollover relief no longer apply
Making Tax Digital for Income Tax
MTD for Income Tax requires landlords and the self-employed to keep digital records and send HMRC quarterly updates via compatible software. It is phased in by qualifying income: over £50,000 from April 2026, over £30,000 from April 2027, and over £20,000 from a later date. Property income counts towards the threshold.
If you are over the relevant threshold you need MTD-compatible software and a digital record-keeping habit well ahead of your start date. See the MTD for ITSA guide for the timeline and software options.
Worked Examples
A landlord with £15,000 rent, £3,000 of non-finance expenses and £6,000 of mortgage interest. Profit before the interest credit is £12,000:
Landlord
Tax on £12,000 profit
Less 20% interest credit
Tax due
Basic-rate (20%)
£2,400
−£1,200
£1,200
Higher-rate (40%)
£4,800
−£1,200
£3,600
Under the old rules the higher-rate landlord would have deducted the £6,000 interest first and paid 40% on £6,000 of profit — £2,400. Section 24 raises the bill to £3,600 on the same economics. The more you borrow and the higher your band, the larger the Section 24 penalty. Model your position with the buy-to-let calculator.
Rental income is taxed as part of your overall income at your marginal rate — 20%, 40% or 45% (or the Scottish rates if you are a Scottish taxpayer) — but only on your rental profit, not the gross rent. Profit is rental income less allowable expenses. The first £1,000 of property income is covered by the property allowance, so very small lettings may be tax-free or only need the allowance deducted. Above that, you add the profit to your other income and pay tax at whatever band it falls into. There is no separate, lower "landlord" tax rate.
What is the Section 24 mortgage interest restriction?
Section 24 changed how individual landlords get relief for mortgage interest. Instead of deducting interest as an expense before tax, finance costs now attract only a basic-rate (20%) tax reduction applied to your final tax bill. So a higher-rate landlord no longer gets 40% relief on interest — only 20%. This can push some landlords into a higher tax band and, in the worst cases, leave them paying tax even on a property that makes little real profit. It does not apply to companies, which still deduct interest in full, which is one reason many landlords have incorporated.
What expenses can I deduct from rental income?
Allowable expenses are costs incurred "wholly and exclusively" for the letting. Common ones include letting agent and management fees, property insurance, repairs and maintenance (but not improvements), ground rent and service charges, council tax or utilities you pay, accountancy fees, and the cost of replacing domestic items like furniture and white goods under the replacement of domestic items relief. Mortgage interest is no longer a deductible expense — it goes through the Section 24 tax credit instead. Capital costs such as extensions or the purchase price are not deductible against income but may reduce a future Capital Gains Tax bill.
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What is the SA105 and do I need to file one?
The SA105 is the UK property supplementary page of the Self Assessment tax return, where you report rental income, expenses and the finance-cost tax credit. You file it alongside your main SA100 return if your property income requires reporting — generally once gross rents exceed £1,000, or profits are taxable. You normally need to register for Self Assessment by 5 October following the tax year you first had rental income, file online by 31 January, and pay any tax due by the same date. Keeping good records of rent received and expenses throughout the year makes completing the SA105 far simpler.
Has the Furnished Holiday Let (FHL) regime really been abolished?
Yes. The Furnished Holiday Lettings regime was abolished from April 2025, so for 2026/27 there is no longer a special tax treatment for qualifying holiday lets. Former FHLs are now taxed like any other rental property: mortgage interest falls under the Section 24 restriction, the income no longer counts as relevant earnings for pension contributions, capital allowances on furniture are replaced by the replacement of domestic items relief, and capital gains reliefs such as Business Asset Disposal Relief and rollover relief no longer apply. Landlords who relied on the old FHL advantages have had to rethink their tax position.
What is Making Tax Digital for Income Tax and when does it start for landlords?
Making Tax Digital for Income Tax (MTD for ITSA) requires landlords and the self-employed to keep digital records and send HMRC quarterly updates through compatible software, replacing the single annual return for most. It is being phased in by income level: those with qualifying income over £50,000 are mandated from April 2026, over £30,000 from April 2027, and over £20,000 from a later date. Property income counts towards the threshold. Landlords above the relevant threshold need MTD-compatible software and a digital record-keeping routine well before their start date.
How do I report rental losses?
If your allowable expenses exceed your rental income in a year, you make a rental loss. Property losses are generally carried forward and set against future profits from the same UK property business — they cannot usually be set against your other income such as salary. You still report the loss on the SA105 so HMRC has a record to carry forward. Because all your UK residential lettings are treated as one property business, a loss on one property can be offset against profit on another in the same year before any surplus is carried forward.
Do I pay tax on rental income if I let a room in my own home?
Letting a furnished room in your main home is covered by the separate Rent a Room scheme, which lets you receive up to £7,500 a year tax-free (£3,750 each if shared). Above that threshold you can either pay tax on the excess over £7,500 with no expense deductions, or opt to be taxed normally on the profit — whichever is better. Rent a Room only applies to a room in your own home, not to a separate buy-to-let, which falls under the ordinary rental income rules and the SA105.
Should I hold a rental property personally or through a limited company?
It depends. Companies escape the Section 24 restriction and deduct mortgage interest in full, and pay corporation tax (19%/25%) rather than income tax, which can be cheaper for higher-rate landlords retaining profits. But extracting profits adds dividend or salary tax, mortgages are often dearer, and there are running costs and possible Capital Gains Tax and Stamp Duty on incorporating an existing portfolio. There is no universal answer — heavily geared, higher-rate, long-term landlords often benefit from a company, while smaller or basic-rate landlords frequently do not.
How does the £1,000 property allowance work?
Every individual gets a £1,000 property allowance. If your gross property income for the year is £1,000 or less, it is fully covered and you usually do not even need to report it. If your income is above £1,000, you can choose either to deduct the £1,000 allowance instead of your actual expenses (useful when expenses are low), or to deduct your actual allowable expenses as normal — whichever gives the lower tax. You cannot claim both the allowance and actual expenses on the same income.
When do I pay the tax on my rental profit?
Tax on rental profit is paid through Self Assessment, due by 31 January following the end of the tax year. If your tax bill is large enough you may also have to make payments on account — two advance payments towards the next year's bill, each 50% of the current liability, due 31 January and 31 July. As MTD for Income Tax rolls out, the record-keeping and reporting cadence changes to quarterly updates, though the payment dates for the tax itself are not changing in the same way.
Disclaimer: This guide reflects 2026/27 UK rental income tax rules. Tax bands, the Section 24 restriction, the property allowance, MTD thresholds and the treatment of former holiday lets change at fiscal events, and your liability depends on your other income and how the property is held. Consult a qualified accountant before acting, and refer to gov.uk for current rates.