UK Rental Income Tax Guide 2026 — What Every Landlord Needs to Know
Rental income in the UK is subject to Income Tax after allowable expenses. In 2026/27 mortgage interest is no longer deductible — instead you get a 20% tax credit (Section 24). Full guide for individual landlords.
What counts as rental income?
Rental income includes all amounts received from letting out UK property:
- Monthly rent payments
- Advance rent payments
- Non-refundable deposits
- Payments for services included in the tenancy (e.g. broadband if bundled)
- Payments from sub-tenants if you are the head tenant
It does not include refundable tenancy deposits (until/unless they are retained).
Allowable expenses — what you can deduct
You can deduct revenue expenses (day-to-day costs of running the property) from your rental income. The key principle: the expense must be wholly and exclusively for the purposes of the letting business.
Fully deductible expenses
| Expense category | Examples |
|---|---|
| Letting agent and management fees | Monthly management fee, tenant find fee |
| Maintenance and repairs | Fixing a boiler, repainting, replacing broken windows |
| Insurance | Buildings, contents, landlord liability |
| Service charges | Block management fees for leasehold flats |
| Accountancy fees | Preparation of rental accounts and tax return |
| Advertising | Listing fees on property portals |
| Utility bills | If landlord pays gas, electricity, water |
| Council tax | If landlord pays during void periods |
| Cleaning between tenancies | End of tenancy professional clean |
| Legal fees | Tenancy renewals, debt recovery (not purchase costs) |
Not deductible as revenue expenses
| Not deductible | Why |
|---|---|
| Property purchase costs | Capital expenditure — added to CGT base cost |
| Improvements and extensions | Capital expenditure (e.g. adding a bathroom) |
| Mortgage capital repayment | Capital, not revenue |
| Personal travel to view investment properties | Not wholly for the letting |
| Mortgage interest | Section 24 restriction — see below |
Repair vs improvement
This distinction is critical. Repairs (like-for-like replacements) are deductible. Improvements (enhancing the property beyond its original state) are not.
Examples:
- Replacing a broken boiler with a similar model = repair (deductible)
- Replacing a basic kitchen with a high-spec fitted kitchen = improvement (capital)
- Repainting walls in same colour = repair (deductible)
- Knocking through a wall to create open-plan living = improvement (capital)
Section 24: the mortgage interest restriction
This is the most significant tax change for landlords in recent years. Since April 2020, individual landlords cannot deduct mortgage interest as an expense. Instead, they receive a 20% basic rate tax credit on the lower of:
- Finance costs (mortgage interest, arrangement fees, etc.)
- Property income profits (before deducting finance costs)
- Total adjusted income
How the Section 24 credit works
Example: You have rental income of £15,000, allowable expenses of £3,000, and mortgage interest of £8,000.
| Calculation | Old rules (pre-2020) | Section 24 (2026/27) |
|---|---|---|
| Rental income | £15,000 | £15,000 |
| Less allowable expenses | -£3,000 | -£3,000 |
| Less mortgage interest | -£8,000 | N/A |
| Taxable profit | £4,000 | £12,000 |
| Income tax (40% higher rate taxpayer) | £1,600 | £4,800 |
| Less 20% tax credit on finance costs | N/A | -£1,600 |
| Net tax on rental income | £1,600 | £3,200 |
The higher rate landlord pays double the tax under Section 24. A basic rate taxpayer is broadly unaffected (they effectively get 20% relief and owe 20% tax — the credit cancels out). But a higher rate taxpayer loses 20p per pound of mortgage interest they cannot deduct.
The £1,000 property income allowance
The property income allowance is £1,000 per tax year (introduced in 2017/18). It works as follows:
- If your gross rental income is under £1,000, you pay no tax and do not need to report the income on a Self Assessment return.
- If your gross rental income is over £1,000, you can either:
- Deduct actual expenses as normal, OR
- Claim the £1,000 allowance in place of all expenses
Choose whichever results in the lower tax bill. In practice, if your actual expenses are under £1,000, the allowance is more efficient.
You cannot combine the £1,000 allowance with actual expenses — it is one or the other.
Joint ownership of property
If you own a rental property jointly with another person (e.g. a spouse or civil partner), rental income and expenses are split between you in proportion to your beneficial ownership. For married couples and civil partners, HMRC assumes a 50/50 split unless you elect otherwise using Form 17 (Declaration of Beneficial Interests in Joint Property and Income).
This can create useful tax planning opportunities:
- Transfer a portion of the property to the lower-income spouse to shift rental income to their lower tax band
- However, a transfer of beneficial interest must be a genuine legal transfer — it cannot be a paper arrangement
Note: any transfer of ownership may trigger a Stamp Duty Land Tax (SDLT) charge on the proportion transferred if there is a mortgage.
Furnished Holiday Lettings — abolished April 2025
The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025. Properties that previously qualified as FHLs (short-term holiday lets meeting certain occupancy conditions) are now taxed under the same residential letting rules as standard long-term rentals.
Key changes for former FHL owners:
- No more capital allowances on furniture, fixtures, and equipment
- No more pension contribution eligibility from FHL profits
- No more Business Asset Disposal Relief on disposal (10% CGT rate)
- No more Business Asset Rollover Relief on reinvestment
- Treated as standard property income for all purposes
If you own a holiday let, your tax position from 2025/26 onwards is the same as a standard buy-to-let landlord.
Replacing domestic items
Where a landlord replaces a domestic item (furniture, white goods, carpets, etc.), the Replacement of Domestic Items relief allows a deduction for the cost of the replacement item (not the original purchase). The old item must be disposed of.
- You can deduct the cost of a like-for-like replacement
- If you upgrade (e.g. replacing a standard washing machine with a premium model), deduct only the cost of a comparable standard item
- This applies to residential lets — not commercial property
Note: the old Wear and Tear Allowance (a flat 10% of rent) was abolished from April 2016. The Replacement of Domestic Items relief replaced it for furnished residential lets.
Self Assessment reporting requirements
If your rental income is over £1,000 per year (or rental profits push you above the personal allowance), you must:
- Register for Self Assessment by 5 October following the end of the tax year
- File a Self Assessment return by 31 January online (31 October for paper)
- Report all rental income and expenses on the UK Property supplementary pages (SA105)
- Pay any tax owed by 31 January, with payments on account if applicable
Keep records of all rental income and expenses for at least 5 years after the relevant SA filing deadline.
MTD for landlords — from April 2026
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) requires landlords with gross income over £50,000 (from self-employment plus property combined) to keep digital records and submit quarterly updates from April 2026. The threshold drops to £30,000 from April 2027.
Under MTD ITSA:
- You report rental income and expenses quarterly via HMRC-compatible software
- An end-of-period statement replaces the annual SA105 supplementary page
- The deadline for the final declaration shifts to 31 January as now
If you are approaching these thresholds, now is the time to set up compatible bookkeeping software.
Related calculators
Use the income tax calculator to model how rental profit stacks on top of your salary and what your total tax bill will be.
The take-home pay calculator helps you understand your overall financial picture when combining employment income with rental income.
Frequently asked questions
How is rental income taxed in the UK in 2026/27?
Rental income is added to your other income (salary, pension, etc.) and taxed at your marginal income tax rate — 20% basic rate, 40% higher rate, or 45% additional rate. You can deduct allowable expenses from rental income before calculating the taxable amount.
Can I deduct mortgage interest from rental income in 2026?
No. Since April 2020, individual landlords cannot deduct mortgage interest as an expense. Instead, you receive a 20% tax credit (Section 24) on the lower of your finance costs, rental profit, or adjusted total income. Higher and additional rate taxpayers bear the full cost of this change.
What is the property income allowance?
The property income allowance is £1,000 per tax year. If your gross rental income is under £1,000, you pay no tax and do not need to report it. If it is over £1,000, you can choose to deduct the £1,000 allowance instead of actual expenses — but only if that results in a lower tax bill.
Do I need to register for Self Assessment if I have rental income?
Yes, if your rental income exceeds £1,000 per year or if rental profits plus other income exceed the personal allowance. You must register for Self Assessment and declare rental income on your tax return. The deadline to register is 5 October following the end of the tax year.
What expenses can I deduct from rental income?
Allowable expenses include letting agent fees, property management charges, maintenance and repairs (not improvements), buildings and contents insurance, council tax paid by the landlord, service charges, accountancy fees, and advertising costs. Capital improvements are not deductible — they are added to the property's cost for CGT purposes.
What are the rules for furnished holiday lettings from April 2025?
The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025. FHL properties are now taxed under the same rules as standard residential lets. They no longer qualify for the beneficial FHL tax treatment including capital allowances or pension contribution eligibility.
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