HMO Tax Guide for UK Landlords 2026/27

What Is an HMO?

A House in Multiple Occupation is, in essence, a property let to three or more tenants who do not form a single household and who share facilities such as a kitchen or bathroom. The defining feature is shared living: unrelated individuals -- often professionals or students -- each rent a room while sharing communal areas. This is different from a single family renting an entire house, which is an ordinary buy-to-let rather than an HMO.

For tax purposes the distinction matters because HMO rents are typically inclusive of utility bills and the landlord shoulders far more of the running costs -- electricity, gas, water, broadband, communal cleaning and gardening. These costs are deductible, which broadens the expense profile compared with a single let where the tenant usually pays the bills directly.

An HMO is generally treated as part of your UK property rental business and taxed under the property income rules, not as a trade. The number of occupants also drives licensing obligations, which we cover next.

HMO Licensing

Mandatory licensing

Mandatory HMO licensing applies where a property is occupied by five or more people forming more than one household and sharing facilities. Any landlord of a large HMO must hold a mandatory licence from the local council, regardless of the number of storeys. Operating an unlicensed mandatory HMO is a criminal offence and can lead to fines and rent repayment orders.

Additional and selective licensing

Beyond the mandatory scheme, many councils operate additional licensing, which extends the licensing requirement to smaller HMOs (for example three or four occupants), and selective licensing, which can require a licence for all private rented homes in a designated area. Because these schemes are local, a three-person HMO may need a licence in one borough but not in a neighbouring one. Always check the specific licensing position with the local authority before letting.

Licence application and renewal fees are an allowable revenue expense, deductible against your HMO rental profits because they are incurred wholly and exclusively for the property business.

Allowable Expenses

Because HMO rents are usually bills-inclusive, the landlord can deduct a wide range of running costs. To be deductible, an expense must be revenue (not capital) in nature and incurred wholly and exclusively for the property business. Typical deductible HMO expenses include:

• All utilities you pay: gas, electricity, water and broadband supplied to the house.
• Communal cleaning and gardening: regular cleaning of shared areas and upkeep of any garden.
• Council tax during voids: council tax you pay between tenancies when rooms are empty.
• HMO licensing fees: application and renewal fees for mandatory, additional or selective licences.
• Landlord insurance: buildings, contents and specialist HMO landlord insurance.
• Letting and management fees: agent fees for finding tenants and managing the property.
• Repairs and maintenance: fixing wear and tear and keeping the property in good order.
• Fire safety servicing: testing and maintaining alarms, emergency lighting and extinguishers.
• Professional fees: accountancy and similar costs of running the business.

Note the capital versus revenue distinction. Replacing a worn-out boiler with a similar one is a deductible repair; installing central heating where there was none, or building an extension, is capital expenditure that is not deductible against income but may reduce a future capital gain.

Section 24 and Capital Allowances

Section 24 finance cost restriction

Individual HMO landlords cannot deduct mortgage interest and other finance costs directly from rental income. Instead, the full rental profit is taxed and you receive only a basic-rate (20%) tax credit for your finance costs. For a higher-rate taxpayer this roughly halves the value of interest relief and can also inflate your taxable profit enough to tip you into a higher band or reduce allowances. Because HMOs are often highly geared, Section 24 has a particularly significant effect on this type of letting.

Capital allowances on communal plant

Capital allowances on plant and machinery are not available on items inside a residential dwelling -- for furniture and white goods used in the let rooms you instead rely on the replacement of domestic items relief, which gives a deduction for replacing (not first buying) such items.

However, capital allowances can be claimed on plant and machinery in the genuinely communal and common parts of an HMO -- for example fire alarm systems, emergency lighting, communal heating systems and shared appliances in communal kitchens. These are not within a single dwelling, so the usual residential exclusion does not apply. Identifying communal plant correctly can produce a valuable annual investment allowance or writing-down allowance claim, so specialist advice often pays for itself on larger HMOs.

SDLT and CGT

SDLT 3% surcharge on purchase

Buying an HMO as an investment normally triggers the 3% Stamp Duty Land Tax surcharge for additional residential property, charged on top of the standard residential SDLT rates. An HMO is residential property for SDLT, so it is taxed at residential rates plus the surcharge rather than the lower non-residential rates, unless a specific relief (such as multiple dwellings relief) or genuine mixed use applies. Confirm the SDLT position with your conveyancer before exchange.

CGT on disposal

When you sell an HMO held personally, the gain is taxed at residential property CGT rates -- for 2026/27, 18% on gains within your remaining basic-rate band and 24% on gains in the higher-rate band. You deduct the annual exempt amount, the original cost, buying and selling costs, and qualifying capital improvements. As an investment property, an HMO does not usually qualify for private residence relief.

CGT on UK residential property must be reported and paid within 60 days of completion using HMRC's online service, with the final position reconciled through Self Assessment.

Worked Example: £65,000 Gross HMO Income

Consider a higher-rate landlord with a seven-bedroom HMO generating £65,000of bills-inclusive gross rental income for the year. The illustrative figures below show how the profit and tax are built up.

Under Section 24, the £42,000 profit is taxed in full and the £12,000 of mortgage interest produces only a 20% tax credit of £2,400. If this profit sits in the higher-rate band, the 40% tax on £42,000 is £16,800, reduced by the £2,400 finance credit to a net tax of £14,400 on the HMO -- before considering the landlord's other income and personal allowance. The same £12,000 of interest under the old rules would have saved £4,800 at 40%, so Section 24 costs this landlord around £2,400 a year.

Use the income tax calculator to model how your HMO profit interacts with your other income and tax bands.