UK Landlord Rental Income Tax (2026/27): Section 24 + Expenses + IHT
UK landlord tax 2026/27: Section 24 finance cost credit, allowable expenses, replacement domestic items, rent-a-room, Form 17, CGT, IHT and worked examples.
The property tax rules apply across the UK. The worked examples use the rest-of-UK Income Tax bands; Scottish taxpayers pay Scottish rates on rental profit, although the Section 24 reduction is still at the 20% basic rate.
Section 24 mortgage interest restriction
Section 24 of Finance (No. 2) Act 2015 was phased in from 2017/18 and has applied in full since 2020/21. Individual landlords of residential property can no longer deduct mortgage interest and other finance costs from rental profit. Instead they get a tax reduction of 20% of the lowest of the finance costs, the property profits and their adjusted total income above the Personal Allowance (PIM2052).
Worked example - higher-rate landlord (England, 2026/27): £18,000 rent, £8,000 mortgage interest, £3,000 other costs, £75,000 salary. The rent adds £15,000 to taxable income, all at 40%. The finance cost reduction is £1,600. Total Income Tax is £21,832, which is £1,600 more than if the interest were still deductible: the gap between 40% and 20% relief on the interest.
Outside Section 24: limited companies (which deduct interest in full) and commercial property. Basic-rate landlords lose little relief directly, but because rent is no longer reduced by interest, their taxable income is higher, which can push part of it into the higher-rate band or affect income-based thresholds.
3 worked landlord scenarios
| Scenario | Rent | Mortgage interest | Profit before interest | S24 reduction | Total Income Tax | Extra vs full deduction |
|---|---|---|---|---|---|---|
| Single buy-to-let, basic-rate landlord Other income £30,000. Day job plus rent stays inside the basic-rate band. | £14,400 | £6,000 | £12,000 | £1,200 | £4,686 | £0 |
| Single buy-to-let, higher-rate landlord Other income £75,000. Day job already above the higher-rate threshold, so the rent is taxed at 40% and the interest relieved at 20%. | £18,000 | £8,000 | £15,000 | £1,600 | £21,832 | £1,600 |
| Small portfolio, no other income Other income £0. Profit before interest stays inside the basic-rate band, so the 20% reduction matches the relief the interest would have had. | £54,000 | £22,000 | £46,000 | £4,400 | £2,286 | £0 |
Computed with our Section 24 calculator engine for England, 2026/27. "Total Income Tax" covers the salary and the rent after the finance cost reduction; "extra" compares it with the pre-2017 rules where interest was deductible.
Allowable rental expenses
Costs must be incurred wholly and exclusively for the property business (ITTOIA 2005 s.272 applies the trading rules).
- Letting agent and management fees
- Insurance premiums - landlord buildings and contents policies
- Council tax and utilities you pay, for example between tenancies
- Maintenance and repairs - not improvements
- Gas safety certificates, EICRs, EPCs
- Service charges and ground rent for leasehold properties
- Cleaning between tenancies
- Travel for the business - actual costs, or fixed-rate mileage of 55p a mile for the first 10,000 business miles and 25p after if you have not claimed capital allowances on the vehicle (PIM2220)
- Professional fees - accountant, legal fees for tenancy disputes, debt collection
- Tenancy referencing and right-to-rent checks
- Replacement of domestic items (ITTOIA s.311A)
Not deductible: mortgage capital repayments; the purchase price and buying costs (added to the CGT base cost); improvements; your own time. Finance costs - mortgage interest and the incidental costs of the loan, such as arrangement fees - are not deducted but get the 20% reduction.
Replacement Domestic Items Relief
ITTOIA 2005 s.311A, for expenditure from 6 April 2016. If you let a dwelling, you can deduct the cost of replacing a domestic item you provided for the tenant's use: movable furniture, furnishings (carpets, curtains, rugs), appliances and kitchenware (PIM3210).
- It must be a replacement: the first purchase of an item does not qualify, and the old item must no longer be available for use.
- Like for like: if the new item is an improvement, the deduction is limited to what a like-for-like replacement would have cost. Money received for the old item is deducted.
- Not fixtures: baths, toilets, boilers and fitted cupboards are not domestic items, though replacing them may be a deductible repair.
- Furnished or not: it applies to any let dwelling, but not where rent-a-room relief is claimed.
FHL abolition April 2025 - what changed
The Furnished Holiday Lettings regime was abolished from 6 April 2025 for Income Tax and CGT, and 1 April 2025 for Corporation Tax (HMRC policy paper). The advantages that ended:
- Exemption from the finance cost restriction
- Capital allowances on furniture and equipment (new spending now gets replacement of domestic items relief)
- Business Asset Disposal Relief, rollover relief and gift relief on disposal
- Treatment of the profits as relevant earnings for pension relief
- Exclusion from the 50:50 rule for married couples, so profits could be split as agreed (TSEM9820)
Transitional rules: existing capital allowance pools continue to get writing-down allowances; brought-forward holiday-let losses can be set against future profits of the whole UK or overseas property business; and BADR can still apply to a disposal within the normal three years after a qualifying holiday-let business ceased before abolition. An anti-forestalling rule from 6 March 2024 stops unconditional contracts being used to secure the old reliefs. See our FHL abolition guide.
Rent a Room Scheme - £7,500 tax-free
Up to £7,500 a year from letting furnished accommodation in your only or main home is tax-free (ITTOIA 2005 Part 7 Chapter 1; GOV.UK).
- Automatic if your income is below the threshold - you do not need to do anything.
- Above the threshold: on your tax return, either deduct the £7,500 allowance from the gross rent or record actual income and expenses.
- Shared income: the threshold is £3,750 each if someone else also gets income from letting rooms in the same home.
- Interest: if you claim the relief you cannot also deduct mortgage interest (PIM2052).
Worked example: £600 a month is £7,200 a year, below £7,500, so it is tax-free. £800 a month is £9,600; with the allowance, £2,100 is taxable, or £840 of tax at the higher rate.
Related calculators and guides
- Landlord tax guide - existing narrative overview.
- Section 24 calculator - interactive mortgage interest restriction calculator.
- CGT on second home - disposal tax mechanics.
- Rent-a-Room relief guide - £7,500 tax-free scheme detail.
- FHL abolition guide - April 2025 transition rules.
- Renters' Rights Act 2025 - section 21 abolition and the landlord database.
- SDLT 2026/27 worked examples - 5% higher-rates surcharge on buy-to-let purchases.
- MTD ITSA guide - who is in from 6 April 2026.
- LTD company closure - if incorporating then closing later.
Frequently asked questions
What is Section 24 and how does it work?
Section 24 of Finance (No. 2) Act 2015 inserted s.272A into ITTOIA 2005. It was phased in from 2017/18, and from 2020/21 individual landlords of residential property get no deduction for mortgage interest and other finance costs. Instead they get a tax reduction of 20% of the lowest of: the finance costs, the property profits, and adjusted total income above the Personal Allowance. Any unrelieved costs carry forward. Example (England, 2026/27): £18,000 rent, £8,000 interest, £3,000 other costs and a £75,000 salary. The rent adds £15,000 to taxable income and the reduction is £1,600; tax is £1,600 a year more than if the interest were deductible. Companies are not affected and commercial property is outside the rule.
What expenses can I deduct from rental income?
Costs incurred wholly and exclusively for the property business, for example: letting agent and management fees, landlord insurance, council tax and utilities you pay (such as between tenancies), repairs and maintenance (not improvements), safety certificates, service charges and ground rent, cleaning, accountancy and legal fees for the letting, referencing and right-to-rent checks, and travel for the business (actual costs, or fixed-rate mileage of 55p a mile for the first 10,000 business miles and 25p after, if you have not claimed capital allowances on the car). Not deductible: mortgage capital repayments, the purchase price and buying costs (these go into the CGT base cost), improvements, and your own time. Mortgage interest and other finance costs, including arrangement fees, get the 20% tax reduction instead.
What is Replacement Domestic Items Relief?
ITTOIA 2005 s.311A, for expenditure from 6 April 2016. Where you let a dwelling and replace a domestic item you provided for the tenant (movable furniture, furnishings such as carpets and curtains, appliances, kitchenware), you can deduct the cost of the replacement. Conditions: it must replace an old item that is no longer available for use; the first purchase of an item does not qualify; and if the new item is an improvement, the deduction is limited to the cost of a like-for-like replacement. Any amount received for the old item is deducted. Fixtures (baths, toilets, boilers, fitted cupboards) are not domestic items, though replacing them may be a deductible repair. The relief applies whether the property is let furnished, part-furnished or unfurnished, but not where rent-a-room relief is claimed (PIM3210).
Was the Furnished Holiday Letting regime really abolished?
Yes, from 6 April 2025 for Income Tax and CGT (1 April 2025 for Corporation Tax). Former holiday lets are now part of the ordinary UK or overseas property business. Lost: exemption from the finance cost restriction; capital allowances on new spending (replacement domestic items relief applies instead, and existing pools continue to get writing-down allowances); BADR, rollover and gift relief; and treatment as relevant earnings for pension relief. Brought-forward holiday-let losses can be set against future profits of the whole property business. The 50:50 rule now applies to jointly owned former holiday lets of married couples, so an unequal split needs Form 17. BADR can still apply to a disposal within the normal three years after a qualifying holiday-let business ceased before abolition.
What is the Rent a Room Scheme?
You can earn up to £7,500 a year tax-free from letting furnished accommodation in your own home, or £3,750 if someone else also receives income from letting rooms in that home. Below the threshold the exemption is automatic. Above it you choose, on your tax return, between deducting the £7,500 allowance from the gross rent or recording actual income and expenses. Example: £9,600 a year of rent with the allowance leaves £2,100 taxable, which is £840 of tax for a higher-rate taxpayer.
How does joint ownership work for rental tax?
For a married couple or civil partners living together, income from jointly held property is split 50:50 for tax (ITA 2007 s.836), whatever the legal title says, unless they own it in unequal shares and make a Form 17 declaration (s.837). The declaration must match the real beneficial ownership, applies to income arising after it is signed, and must reach HMRC within 60 days of signing or it has no effect. Example (England, 2026/27): £12,000 of profit shared by a husband earning £40,000 and a wife earning £70,000. At 50:50 the tax on the rent is £3,600; if they genuinely own the property 90:10 in the husband's favour and file Form 17, it is £2,746, because part of his share crosses the higher-rate threshold. Unmarried co-owners are taxed on their actual shares and do not use Form 17.
Do I need to register for Self Assessment as a landlord?
The first £1,000 of property income is tax-free (the property allowance). GOV.UK says to contact HMRC if your property income is between £1,000 and £2,500 a year, and to report it on a Self Assessment return if it is more than £2,500 after allowable expenses or £10,000 before them. If you do not usually send a return, register by 5 October after the end of the tax year. You can deduct either the £1,000 allowance or your actual expenses, not both. The online filing deadline is 31 January after the tax year. See our SA deadlines + POA guide.
What is Capital Gains Tax on rental property?
Gains on residential property are taxed at 18% within the basic-rate band and 24% above it, after the £3,000 annual exempt amount. Private Residence Relief does not apply to a property that was never your home; for a former home it covers the period you lived there plus the final 9 months. Letting relief now only applies where you shared the home with the tenant. If there is tax to pay on a UK residential sale, you must report and pay it within 60 days of completion using HMRC's UK property account, as well as on your Self Assessment return. See our CGT on second home calculator.
How is Inheritance Tax charged on rental property?
Rental property forms part of your estate for Inheritance Tax at its value at death, charged at 40% above the available nil-rate bands. Beneficiaries take it at its probate value for Capital Gains Tax (TCGA 1992 s.62). A letting business is normally excluded from Business Property Relief because a business of holding investments or dealing in land is not relevant business property (IHTA 1984 s.105(3)). A lifetime gift is a potentially exempt transfer, free of Inheritance Tax if you survive 7 years, but it is a disposal at market value for Capital Gains Tax, and if you keep the rent or use of the property it is a gift with reservation (FA 1986 s.102). Take advice for larger portfolios. See our IHT couple calculator.
Should I incorporate my rental portfolio?
Companies deduct mortgage interest in full and pay Corporation Tax rather than Income Tax, which is why Section 24 makes incorporation worth modelling for higher-rate landlords. Against that: moving properties into a company is a disposal for CGT at market value (incorporation relief under TCGA s.162 needs a business, not just investments, and from 6 April 2026 must be claimed); the company pays SDLT on market value at the higher rates (in England and NI, £40,000 on a £500,000 property); personal mortgages need refinancing; and profits drawn as dividends are taxed again. See our landlord incorporation guide.
What records do I need to keep?
TMA 1970 s.12B treats a person letting property as carrying on a trade for record-keeping (s.12B(6)(a)), so records must be kept until at least the fifth anniversary of the 31 January after the tax year (2026/27 records until 31 January 2033), or longer if HMRC opens an enquiry. Keep: rent received, invoices and receipts for expenses, mileage logs, the purchase contract and completion statement (for the CGT base cost), improvement invoices, tenancy agreements and deposit protection certificates, and annual mortgage interest statements (needed for the Section 24 reduction). Making Tax Digital for Income Tax applies from 6 April 2026 where qualifying income (self-employment plus property, before expenses) for 2024-25 was over £50,000, from 6 April 2027 over £30,000, and from 6 April 2028 over £20,000. See our MTD ITSA guide.
What new landlord regulations apply in 2026/27?
In England, the Renters' Rights Act 2025 ended section 21 'no-fault' evictions and moved tenancies onto a periodic basis from 1 May 2026, and a private rented sector landlord database is being rolled out under the government's implementation roadmap. See our Renters' Rights Act 2025 guide. Landlords in England must also check a tenant's right to rent, and a large HMO (5 or more people forming more than one household) needs a licence in England and Wales. Wales, Scotland and Northern Ireland have their own tenancy law. None of these are tax changes, but they affect costs and administration.