Rental Income Allowable Expenses 2026/27: What Landlords Can and Cannot Claim

Being a landlord in 2026/27 means navigating a tax system that has changed significantly over the past decade. The Section 24 mortgage interest restriction has removed one of the most valuable deductions, the furnished holiday lettings regime has been abolished, and many landlords are now paying more tax on the same rental income than they were five years ago. This guide explains exactly what you can and cannot claim -- and how the current rules affect your tax bill.

The GBP 1,000 Property Allowance

If your gross rental income (before any expenses) is GBP 1,000 or less in a tax year, you do not need to report it to HMRC or pay any tax on it.

If your gross rental income exceeds GBP 1,000, you have a choice:

Option A -- Use the property allowance: deduct GBP 1,000 from your gross rental receipts and pay tax on the balance. You cannot also claim actual expenses.

Option B -- Claim actual expenses: deduct your genuine allowable expenses and pay tax on the net profit.

When to Use Each Option

The property allowance is most useful for landlords with minimal expenses -- for example, someone renting out a room occasionally or a garage space.

Section 24: The Mortgage Interest Restriction

Section 24 of the Finance (No. 2) Act 2015 fundamentally changed how landlords can claim relief on mortgage interest and other finance costs. It was phased in between 2017 and 2020 and now applies in full.

The Old System vs the Current System

Under the old system (before 2017), mortgage interest was a fully deductible expense. A landlord paid tax only on their net rental profit after deducting mortgage interest.

Under the current system, finance costs are not deductible at all. Instead, landlords receive a basic rate tax credit -- 20% of the total finance costs -- applied against their tax liability after it has been calculated.

Worked Example: The Section 24 Impact

A landlord has rental income of GBP 15,000, mortgage interest of GBP 8,000, and other allowable expenses of GBP 2,000.

The Section 24 change costs this landlord an additional GBP 1,600 per year. Higher-rate taxpayers are hit hardest because they pay 40% tax on the income used to pay mortgage interest but only receive a 20% credit back -- a net cost of 20% on every pound of mortgage interest.

Finance costs covered by the restriction include mortgage interest, loan interest on money borrowed to fund repairs or improvements, and arrangement fees on mortgages and loans (spread over the loan term).

What You Can Claim: Allowable Expenses Table

Repairs vs Improvements: A Critical Distinction

The distinction between repairs (allowable) and improvements (capital, not allowable) is one of the most frequently debated areas of landlord taxation.

Repairs: restoring something to its original condition. Examples:

• Repainting internal walls
• Fixing a leaking roof
• Replacing a broken boiler with a like-for-like model
• Repairing a garden fence

Improvements: enhancing the property beyond its original standard. Examples:

• Converting a loft into a habitable bedroom
• Installing a new extension
• Replacing a standard kitchen with a high-specification fitted kitchen
• Adding double glazing to a property that previously had single glazing

If work involves both repair and improvement elements -- for example, replacing a damaged roof with a superior material -- you may be able to apportion the cost between the deductible repair element and the non-deductible improvement element. Keep clear records and take professional advice on mixed-element work.

Replacement Domestic Items Relief

Since 2016, landlords of furnished residential properties can claim replacement domestic items relief instead of the old Wear and Tear allowance. This relief allows you to deduct the cost of replacing a domestic item -- furniture, furnishings, appliances, and kitchenware -- when the replacement is like-for-like.

Key rules:

• The relief covers the replacement, not the original purchase
• If you replace with a superior item, the deduction is limited to the equivalent cost of a like-for-like replacement
• The old item must have been disposed of

Furnished Holiday Lettings: What Changed in April 2025

The Furnished Holiday Lettings (FHL) tax regime was abolished with effect from 6 April 2025. Properties that were previously classified as FHLs are now taxed as standard UK rental properties.

What Was Available Under the FHL Regime (Now Abolished)

Former FHL landlords must review their tax planning urgently. The key losses are capital allowances (which could previously shelter 100% of the cost of furniture and fittings) and BADR on eventual sale (which previously meant 10% or 14% CGT instead of the standard residential rate).

Replacement domestic items relief may provide some comfort for furnishing costs on an ongoing basis, but it is not a like-for-like substitute for capital allowances.

David's Worked Example: Higher-Rate Landlord

David is a higher-rate taxpayer who lets a two-bedroom flat. In 2026/27 his figures are:

David's effective tax rate on his rental profit (before the finance credit) is 39.8% -- significantly higher than the 20% a basic-rate landlord would pay. This illustrates why higher-rate landlords have been hit hardest by Section 24.

Under the old system with mortgage interest fully deductible, David's taxable profit would have been GBP 5,806 and his tax GBP 2,322 -- a saving of GBP 1,200 per year.

Summary: Key Rules for 2026/27

• GBP 1,000 property allowance: use it only if your expenses are below GBP 1,000
• Section 24: no mortgage interest deduction; 20% basic rate credit applies instead
• Repairs are allowable; improvements are capital and not deductible
• Replacement domestic items relief covers like-for-like replacements of furnishings
• FHL regime abolished April 2025: no capital allowances, no BADR, Section 24 now applies
• Mileage allowable at 45p/mile (first 10,000 miles)

Our rental income tax calculator lets you enter your gross rent, itemise your allowable expenses, and include your mortgage interest to see your taxable rental profit and net tax bill -- with the Section 24 credit correctly applied. It shows the impact on your overall income tax position if your rental profits push you into the higher-rate band.