HMO Landlord Tax Guide 2026/27: Expenses, CGT and Licensing Costs

Running an HMO (House in Multiple Occupation) is more operationally demanding than a standard buy-to-let, but it often delivers higher yields. The tax treatment is also more nuanced: you have a wider range of allowable expenses, different licensing obligations, and the same CGT and SDLT rules that catch all residential landlords.

This guide covers everything an HMO landlord needs to know about tax in 2026/27, from daily expense claims to disposal planning.

What Counts as an HMO?

An HMO is a property where three or more people from more than one household live and share basic amenities. The "household" definition is crucial:

• A married couple and their children = one household
• Three students who are not related = three households
• A family plus an unrelated lodger = two households

Mandatory licensing applies when:

• Five or more people from more than one household occupy the property
• The building has two or more storeys

However, many councils have extended licensing requirements through additional licensing (smaller HMOs in specific areas) or selective licensing (all rented properties in designated zones). Check your local council's rules -- you may need a licence even for a 3-person HMO.

Licence fees typically range from £300 to £1,500 per property depending on the council and property size. Good news: they are all fully tax deductible.

Allowable Expenses: Where HMOs Differ

The biggest tax advantage of an HMO over a single let is the breadth of deductible expenses. Here is a comprehensive list of what HMO landlords can claim:

Property costs:

• Mortgage interest (as a 20% tax credit via Section 24 for individuals)
• Letting agent fees
• Property management fees
• HMO licence fees (mandatory, additional and selective licensing)
• Buildings and contents insurance

Running costs:

• Gas, electricity and water bills (if included in tenant rents)
• Council tax (for empty periods or if you pay it on behalf of tenants)
• Broadband and TV licence (communal areas)

Maintenance and cleaning:

• Regular communal area cleaning
• Gardening and outdoor maintenance
• Repairs and redecoration between tenancies
• Emergency call-out costs (plumber, electrician)

Furniture and furnishings:

• Replacement of domestic items (beds, sofas, white goods, kettles, etc.) under the Replacement of Domestic Items Relief

Administrative:

• Accountancy fees for rental accounts
• Legal fees for tenant disputes (not for initial property purchase)
• Deposit protection scheme registration costs

The Section 24 Problem for HMO Landlords

HMO landlords who hold properties in their personal name are subject to the same Section 24 finance cost restrictions as all individual landlords. Mortgage interest is not deductible -- instead, you receive a 20% tax credit equal to your finance costs.

For a higher rate taxpayer with £15,000 of annual mortgage interest on an HMO:

• Section 24 credit: £3,000 (20% of £15,000)
• Tax saving under old system: £6,000 (40% of £15,000)
• Extra tax under Section 24: £3,000 per year per property

If you have a portfolio of HMOs, this adds up fast. Some HMO landlords have found that combining higher utility costs with Section 24 restrictions has squeezed margins considerably. Pension contributions to bring adjusted net income below £50,270, or restructuring through a limited company for new purchases, are the main mitigations.

Capital Allowances and Furniture

Residential HMO landlords cannot claim capital allowances on furniture, fittings or equipment in the conventional sense. Instead, you use Replacement of Domestic Items Relief.

This relief allows you to deduct the cost of replacing (not the original purchase of) domestic items used exclusively by tenants. Qualifying items include:

• Beds, mattresses and bedroom furniture
• Sofas, armchairs and coffee tables
• Kitchen white goods (fridge, washing machine, dishwasher)
• Curtains, blinds and carpets
• Smaller items: kettles, microwaves, vacuum cleaners

The deduction is capped at the cost of a like-for-like replacement. If you upgrade to a better item, you claim the cost of the equivalent replacement, not the full cost of the upgrade. Keep receipts and a log of what was replaced and when the old item was removed.

CGT When You Sell an HMO

When you sell a residential HMO, Capital Gains Tax applies to the profit above your purchase price (plus costs). In 2026/27:

• CGT Annual Exempt Amount: £3,000
• CGT rate for residential property (basic rate taxpayer): 18%
• CGT rate for residential property (higher rate taxpayer): 24%

Note that since October 2024, CGT rates on residential property were aligned with other asset classes at 18%/24% (previously residential property attracted 18%/28%).

Selling costs you can deduct from the gain:

• Estate agent fees
• Solicitor fees on sale
• SDLT paid on original purchase
• Legal fees on original purchase
• Cost of improvements (not repairs) made during ownership

You must report the disposal and pay CGT within 60 days of completion for UK residential property. Use the online HMRC property disposal return system.

Is HMO trading? Unlike a hotel or B&B business, a standard HMO does not qualify as a trading business. You cannot use Business Asset Disposal Relief (10% CGT) on disposal. HMRC is clear that property investment -- even intensive HMO operation -- is not normally treated as a trade.

SDLT on Purchasing an HMO

SDLT on an HMO purchase follows the same rules as any residential property:

• Standard SDLT bands apply on the purchase price
• The 3% additional dwelling surcharge applies if you already own another property
• No special HMO exemptions or reductions exist

First-time buyer SDLT relief (nil rate up to £300,000 in 2026/27) does not apply if you intend to let the property. If a first-time buyer purchases an HMO as their first property to live in and rent rooms from, the position is more complex -- specific advice is needed.

SDLT on a £250,000 HMO (landlord already owns other property):

Worked Example: 4-Bed HMO Profit and Tax

A 4-bed HMO in a university town generates:

• Gross annual rent: £28,000 (4 tenants x £583/month)
• Utilities paid by landlord: £3,600
• Council tax: £2,000
• HMO licence fee: £500
• Regular cleaning: £1,200
• Buildings and contents insurance: £600
• Repairs and maintenance: £1,500
• Letting agent (10%): £2,800
• Total allowable expenses (excl. finance costs): £12,200
• Net profit before finance costs: £15,800

If mortgage interest is £8,000 per year, the Section 24 tax credit is £1,600 (20% of £8,000).

For a higher rate taxpayer:

• Taxable income: £15,800 (Section 24 means full £15,800 is taxable)
• Tax at 40%: £6,320
• Minus Section 24 credit: £1,600
• Net tax on HMO: £4,720
• Net after-tax profit: approximately £11,080

For a basic rate taxpayer on the same figures:

• Tax at 20%: £3,160
• Minus Section 24 credit: £1,600
• Net tax: £1,560
• Net after-tax profit: approximately £14,240

The gap between basic and higher rate outcomes on the same property illustrates why mixed ownership with a lower-earning spouse can save several thousand pounds per year per property.

Use our landlord income tax calculator at calchub.uk to model your specific HMO figures with the 2026/27 rates.