Landlord tax is not a single charge — it is a system that operates across rental income, Capital Gains Tax on sale, Stamp Duty on purchase, and in some cases inheritance tax on the estate. Understanding how each element works, what can be deducted, and when reporting is required makes the difference between paying the right amount and either overpaying through missed deductions or underpaying through misclassification.
This hub covers the core landlord tax position for 2026/27: how rental profits are calculated, how the Section 24 mortgage interest restriction works in practice, what expenses are allowable, CGT on disposal, and the key special regimes for rent-a-room and short-let income. For the broader property context, see the mortgages section and the Buy-to-Let hub.
Rental Income Tax: The Core Calculation
Rental income is taxed as part of your total income. There is no separate rental income tax rate — the profit is added to your salary, pension, or other income and taxed at whatever band it falls into.
The four-step calculation for personal landlords:
| Step | Description |
|---|---|
| 1. Total rental income | All rents received across all properties |
| 2. Minus allowable expenses | Letting fees, repairs, insurance, service charges, ground rent, etc. |
| 3. = Taxable rental profit | Income minus deductible expenses |
| 4. Tax at marginal rate | 20%, 40%, or 45% depending on total income |
| 5. Minus 20% finance cost credit | 20% × total mortgage interest paid in the year |
Allowable expenses (deductible from rental income):
- Letting agent and management fees
- Property maintenance and repairs (not improvements)
- Buildings and contents insurance
- Ground rent and service charges
- Accountancy fees related to the rental business
- Council tax, water rates (if paid by landlord)
- Advertising and tenant-finding costs
Not allowable as annual expenses:
- Capital improvements (an extension, new kitchen upgrade)
- Mortgage capital repayments
- Mortgage interest (handled separately via the 20% credit — see below)
Section 24: The Mortgage Interest Restriction
The most significant change to landlord tax in recent years is Section 24 of the Finance Act 2015, which removed the right for personal landlords to deduct mortgage interest from rental income.
Since April 2020, the position is:
- Mortgage interest is not deductible from rental income
- Instead, you receive a 20% tax credit on finance costs
What this means in practice:
A landlord with £12,000 in rental profit and £5,000 in annual mortgage interest:
| Approach | Pre-2020 (old rules) | 2026/27 (current rules) |
|---|---|---|
| Taxable profit | £7,000 (profit minus interest) | £12,000 (profit only) |
| Tax at 40% | £2,800 | £4,800 |
| Finance cost credit | n/a | −£1,000 (20% of £5,000) |
| Net tax bill | £2,800 | £3,800 |
Higher rate landlords pay £1,000 more per year on the same income and mortgage. The restriction does not affect limited companies, which can still deduct finance costs in full against corporation tax.
Worked Example: Typical Higher Rate Landlord
Scenario: James earns £55,000 salary and owns one buy-to-let property. Rental income: £14,400/year. Allowable expenses (letting fees, insurance, repairs): £2,400. Mortgage interest: £6,000.
- Gross rental profit: £14,400 − £2,400 = £12,000
- Added to salary: £55,000 + £12,000 = £67,000 total income
- £12,000 rental profit taxed at 40% = £4,800
- Finance cost credit: 20% × £6,000 = −£1,200
- Net tax on rental income: £3,600
- Effective rate on rental profit: 30%
If James were a basic rate taxpayer (salary below the higher rate threshold):
- £12,000 at 20% = £2,400
- Finance cost credit: −£1,200
- Net tax: £1,200 — broadly the same as the old full deduction would have produced
This is why Section 24 hit higher rate landlords so much harder than basic rate landlords.
CGT When You Sell a Property
When you sell a rental property, Capital Gains Tax applies on the gain (sale price minus original purchase price minus qualifying costs).
CGT rates on residential property (2026/27):
| Taxpayer band | CGT rate on residential property |
|---|---|
| Basic rate | 18% |
| Higher / additional rate | 24% |
The annual CGT exempt amount is £3,000 for 2026/27. Any gain below this is free of CGT.
What you can deduct from the gain:
- Original purchase price and acquisition costs (stamp duty, legal fees)
- Qualifying capital improvement costs (not routine repairs)
- Selling costs (legal fees, estate agent fees)
60-day reporting rule: Since April 2020, landlords must report and pay CGT within 60 days of completion of the sale — not at the end of the tax year. Failure to do so results in automatic penalties and interest. Use HMRC’s online “Report and Pay CGT on UK Property” service.
Special Regimes
Property Income Allowance
If your total rental income across all properties is £1,000 or less per tax year, you do not need to register for Self Assessment or pay tax. This is the property income allowance. If income exceeds £1,000, you can either use the £1,000 as a deduction (instead of actual expenses) or claim actual expenses — whichever gives a better result.
Rent-a-Room Scheme
If you let a furnished room in your own home, the first £7,500 per year is completely tax-free under the Rent-a-Room scheme. This threshold is halved to £3,750 if you share the income with a partner. The room must be in your primary residence — the scheme does not apply to a property you let separately.
Furnished Holiday Lets (FHL)
The tax regime for Furnished Holiday Lets changed significantly in April 2025. FHLs no longer receive the favourable tax treatment that previously distinguished them from standard buy-to-lets — including pension contributions relief, Capital Gains Tax Business Asset Disposal Relief, and the ability to deduct mortgage interest in full. FHL income is now taxed on the same basis as other residential rental income.
Making Tax Digital for Landlords
MTD for Income Tax Self Assessment (MTD for ITSA) will apply to landlords with total qualifying income above set thresholds:
| From | Income threshold |
|---|---|
| April 2026 | £50,000 |
| April 2027 | £30,000 |
| April 2028 | £20,000 |
Under MTD, landlords must keep digital records and submit quarterly updates to HMRC using compatible software. A final year-end declaration replaces the annual Self Assessment return for income in scope. Landlords approaching these thresholds should begin moving to digital record-keeping now.
What This Cluster Covers
| Your question | Best starting point |
|---|---|
| Landlord tax fundamentals? | Buy-to-Let Tax Guide |
| All property taxes mapped? | Property Tax Guide |
| Property income allowance? | Property Income Allowance Guide |
| Filing my landlord return? | Landlord Tax Return Guide |
| MTD requirements? | Making Tax Digital for Landlords |
| Rent-a-room rules? | Rent-a-Room Scheme Guide |
| Airbnb and short-let income? | Airbnb Income Tax UK |
| FHL tax changes? | Furnished Holiday Let Tax Changes |
Related Hubs
- Capital Gains Tax hub — CGT rates, annual exempt amount, and reporting
- Self Assessment hub — how landlords file their tax return
- Buy-to-Let hub — mortgage, ownership structure, and yield decisions
- Income Tax hub — how rental profit interacts with salary and other income