Tax on Rental Income for Landlords UK 2026/27: Section 24, Expenses & Rates

Quick answer

If you let out a property in the UK, you pay income tax on the profit — rent received minus allowable expenses — at your marginal rate of 20%, 40% or 45%. The catch that trips up most landlords is Section 24: mortgage interest is no longer deducted as an expense. Instead you get a basic-rate 20% tax credit on your finance costs. This single change has reshaped buy-to-let economics, and it is the reason a profitable-looking property can leave a higher-rate landlord with surprisingly little after tax.

How rental profit is calculated

Start with the gross rent you received in the tax year (6 April to 5 April), then subtract your allowable expenses. The result is your taxable rental profit, which is stacked on top of your employment, pension or self-employment income and taxed at whatever band it falls into.

For 2026/27 the bands are unchanged: the personal allowance is £12,570, the higher-rate threshold £50,270, and the additional rate begins at £125,140. Rental income can itself push you into a higher band — and because of Section 24, it now does so more aggressively than the cash in your pocket suggests.

Section 24: the mortgage interest restriction

Before 2017, landlords deducted mortgage interest in full before calculating taxable profit. Section 24 phased that out, fully effective from 2020/21. Now:

1. Mortgage interest and other finance costs (loan arrangement fees, interest on loans to buy furnishings) are added back — they are not an expense.
2. You instead receive a tax reducer equal to 20% of the lower of: your finance costs, your rental profit, or your total income above the personal allowance.

For a basic-rate taxpayer the effect is broadly neutral — 20% relief is what they would have got anyway. For a higher-rate taxpayer it is painful: their profit is taxed at 40% but relief on the interest is only 20%, so they effectively pay tax on income that was actually swallowed by the bank. Model your own position with the

.

Worked example: the Section 24 squeeze

Sarah is a higher-rate taxpayer with a buy-to-let:

• Rent received: £15,000
• Allowable expenses (insurance, agent, repairs): £3,000
• Mortgage interest: £6,000

The old way (pre-2017): profit = £15,000 − £3,000 − £6,000 = £6,000, taxed at 40% = £2,400.

The Section 24 way (2026/27): profit = £15,000 − £3,000 = £12,000 (interest not deducted), taxed at 40% = £4,800, minus a 20% credit on the £6,000 interest = £1,200. Net tax = £3,600.

Sarah's tax bill is £1,200 higher than under the old rules — even though her actual cash profit is identical. Worse, the £12,000 added to her income (rather than £6,000) is more likely to tip her over thresholds like the £50,270 higher-rate point or the £100,000 personal-allowance taper. This is the heart of why heavily-mortgaged higher-rate landlords have struggled.

What counts as an allowable expense

You can deduct costs incurred wholly and exclusively for the rental business:

• Letting agent and management fees
• Buildings and contents insurance
• Repairs and maintenance that restore the property (fixing a boiler, repainting, replacing a broken window)
• Ground rent, service charges and council tax during void periods you pay
• Accountancy and professional fees for the rental accounts
• Utility bills you pay rather than the tenant
• Replacement of domestic items — the "replacement of domestic items relief" lets you deduct the cost of replacing (not initially buying) furniture, white goods and furnishings

Repairs vs improvements: the crucial line

Repairs are revenue costs and deductible now. Improvements are capital — they are not deductible against rental income but are added to the property's cost base and reduce your Capital Gains Tax when you sell. Replacing a worn-out kitchen with a similar standard is a repair; ripping it out for a luxury extension is an improvement. Getting this line wrong is one of the most common landlord errors, so keep invoices that show the nature of the work.

The £1,000 property allowance

If your gross rental income is £1,000 or less, you don't need to declare it at all. If it is higher, you can choose to deduct the £1,000 property allowance instead of your actual expenses — useful only when your real expenses are below £1,000, such as a lodger-style let or a low-cost room. You cannot claim the allowance and actual expenses on the same property.

Jointly owned property and spouses

Married couples and civil partners who jointly own a property are taxed 50:50 by default, regardless of the actual ownership split, unless they file a Form 17 declaration reflecting the true beneficial ownership (which must match reality). Shifting more of the income to a lower-earning spouse is a legitimate and popular way to reduce the household tax bill — but the ownership must genuinely be unequal for an unequal split to apply.

Furnished holiday lettings have changed

The favourable Furnished Holiday Lettings regime — which gave trading-style reliefs, full mortgage-interest deduction and capital allowances — was abolished from April 2025. From 2026/27, former FHL properties are taxed under the same rules as ordinary lets, meaning Section 24 now applies to them too and capital gains lose Business Asset Disposal Relief eligibility on that basis. If you ran a holiday let, your tax position has materially worsened and is worth reviewing.

Should you incorporate?

Because companies still deduct mortgage interest in full and pay corporation tax at 19% or 25% rather than higher-rate income tax, some heavily-geared higher-rate landlords incorporate. But incorporation brings Stamp Duty on transfer, potential CGT on the disposal to the company, mortgage refinancing at company rates, and tax on extracting profit as dividends (taxed at 10.75/35.75/39.35% above the £500 allowance). It can pay off for a growing portfolio but rarely for a single casual buy-to-let. Compare the two routes with the

and the .

The cash-basis vs accruals choice

Individual landlords are, by default, taxed on the cash basis: you count rent when it actually arrives and expenses when you actually pay them, rather than when they're invoiced or fall due. For most small landlords this is simpler and helpful — you aren't taxed on rent a tenant owes but hasn't paid. You can elect for the accruals basis (matching income and costs to the period they relate to) if your affairs are larger or you prefer it, but cash basis is now the standard and suits the majority. The main wrinkle is that under cash basis there are some restrictions on interest relief for very large portfolios, but ordinary landlords rarely hit them.

Losses: carrying them forward

A rental business can make a loss — a big repair year, or a long void. You can't set a property loss against your salary or other income (residential lettings losses are ring-fenced), but you carry the loss forward and offset it against future profits from the same UK property business. So a £4,000 loss this year reduces next year's taxable rental profit pound-for-pound. Keep track of accumulated losses on your return; they're easy to forget and represent real future tax savings. If you run several UK properties they're treated as one combined business, so a loss on one offsets profit on another in the same year automatically.

Worked example: a basic-rate landlord

To show how differently Section 24 lands depending on your tax band, contrast Sarah (higher rate, above) with Mark, a basic-rate taxpayer with identical figures:

• Rent received: £15,000; expenses £3,000; mortgage interest £6,000.
• Profit (interest added back): £15,000 − £3,000 = £12,000, taxed at 20% = £2,400.
• Less the 20% finance-cost credit on £6,000 = £1,200.
• Net tax: £1,200 — exactly what he'd have paid under the old "deduct interest then tax at 20%" approach (£6,000 × 20%).

Section 24 is neutral for Mark because his marginal rate equals the credit rate. The danger for Mark is different: the £12,000 added to his income (rather than £6,000 net profit) could nudge his total income over £50,270, dragging part of it — and any future pay rise — into the 40% band, at which point Section 24 starts to bite. Landlords sitting just below the higher-rate threshold should watch this carefully. Model the income interaction with the

.

Allowable finance costs beyond the mortgage

It's worth being precise about what "finance costs" means for the 20% credit, because it's broader than just mortgage interest. It includes interest on loans to buy or improve the property, mortgage arrangement and broker fees, and interest on loans taken to fund the deposit. All of these go into the Section 24 credit calculation rather than being deducted as expenses. Conversely, the capital repayment portion of a repayment mortgage is never relievable at all — only the interest element counts. Landlords on repayment mortgages should make sure they're separating interest from capital on their annual mortgage statement, as only the interest feeds the credit.

Reporting and deadlines

Rental income is reported through Self Assessment. Register by 5 October following the tax year in which you first had lettable profit, then file online by 31 January. From the planned rollout of Making Tax Digital for Income Tax, landlords with qualifying income above the threshold will eventually need to keep digital records and submit quarterly updates — so good record-keeping now will pay off. Our

covers exactly which boxes to use.

Stamp Duty and the cost of acquiring a let

Tax on rental property starts before any rent arrives. Buying an additional dwelling — which a buy-to-let almost always is — attracts the Stamp Duty Land Tax surcharge on top of standard rates in England and Northern Ireland (Scotland and Wales have their own LBTT/LTT equivalents with their own surcharges). That surcharge materially raises the entry cost and, as we saw, the SDLT you pay forms part of your CGT base cost when you eventually sell. Factoring acquisition tax into your yield calculation is essential: a property that looks like it yields 6% on the purchase price may yield noticeably less once SDLT, legal fees and refurbishment are added to the real capital you've committed. Run the purchase numbers through the

and the together so your headline yield reflects the true cost of getting in.

Non-resident landlords

If you live abroad but let UK property, you're a non-resident landlord. UK rental income remains taxable in the UK regardless of where you live, and unless you register under the Non-Resident Landlord Scheme, your letting agent (or the tenant, if there's no agent and rent exceeds a threshold) must deduct basic-rate tax from the rent and pay it to HMRC. Registering lets you receive the rent gross and settle your liability through Self Assessment instead — almost always preferable for cash flow. Double-taxation agreements usually prevent you being taxed twice on the same income, but you'll still need to report it in the UK. Non-resident landlords also face CGT on UK residential property gains, with the same 60-day reporting obligation as resident owners.

Putting it all together

Tax on rental income is straightforward in principle — profit at your marginal rate — but Section 24 makes the arithmetic counter-intuitive for higher-rate landlords, because the figure added to your income is the rent before mortgage interest. Deduct every genuine expense, distinguish repairs from improvements, consider a spousal income split if ownership is unequal, and model the Section 24 effect before assuming a property is profitable after tax. Start with the

and the to see your true return.

This article is general information, not tax advice. Figures use 2026/27 UK rates for England, Wales and Northern Ireland. Property tax is complex — consider an accountant for portfolios or incorporation decisions.