Landlord tax explained: income tax, allowable expenses and capital gains

On this page

A UK landlord pays income tax on rental profit, which is the rent less allowable running costs, at the same rates as the rest of their income. Mortgage interest is not deducted from that profit: individual landlords receive a tax reduction of 20% of their finance costs instead. When a let property is sold at a gain, Capital Gains Tax is reported and paid within 60 days of completion. And from 6 April 2026, landlords with qualifying income over £50,000 keep digital records and report quarterly under Making Tax Digital.

This guide is general information about UK tax at the time of writing, 1 October 2026. It is not tax advice. Every landlord's position is different: speak to a qualified accountant before you act.

How rental income is taxed

All the rent from your UK properties forms one property business. You add up the rents, deduct the allowable expenses, and the profit is added to your other income (salary, pension, self-employment) and taxed at your income tax rates. That means rental profit can push part of your income into a higher band.

The £1,000 property allowance. If your gross property income in a tax year is £1,000 or less, you do not need to tell HMRC. Above that, you can either deduct your actual expenses or deduct the £1,000 allowance instead of them, whichever gives the better result. You cannot use the allowance and claim expenses against the same income.

Reporting. At the time of writing, you must report rental income through Self Assessment if your profit is more than £2,500 after expenses, or your income is £10,000 or more before them. Below those levels, you can contact HMRC instead. If you do not already file, register by 5 October after the end of the tax year in which you had the income.

Mortgage interest: the 20% credit (section 24)

Since April 2020 individual landlords of residential property cannot deduct finance costs from rental income. Finance costs include mortgage interest, interest on loans to buy furniture, and fees for arranging the loan.

Instead you receive a basic rate tax reduction: 20% of the lowest of:

1. your finance costs for the year (plus any carried forward),
2. your property business profits, and
3. your adjusted total income above the personal allowance.

If the finance costs are larger than the profits, the unused amount carries forward. For a basic-rate taxpayer the effect is similar to the old deduction. For a higher or additional rate taxpayer the relief is worth less than the tax on the same income, which is why some investors hold property in a limited company. That has its own tax and lending costs, and the right answer depends on the person. Ask an accountant.

Allowable expenses

Expenses are allowable when they are incurred wholly and exclusively for the letting. Typical examples:

• letting agent and management fees
• landlord and buildings insurance
• repairs and maintenance (replacing a broken boiler with a similar one, repainting, fixing a roof)
• gas safety checks, electrical reports, EPCs and HMO licence fees
• ground rent and service charges on a leasehold flat
• utility bills, council tax and broadband you pay for the tenant or guest
• cleaning, gardening and inventory costs
• accountancy fees and legal fees for lettings of a year or less
• advertising and travel for the letting business

Not allowable: the cost of buying the property, stamp duty and legal fees on the purchase, improvements such as an extension or a new kitchen that is better than the old one, the capital part of mortgage repayments, and your own time.

Replacement of domestic items relief

When you replace a furnishing or appliance in a let home, such as a bed, a sofa, curtains, carpets, a fridge, crockery or cutlery, you can deduct the cost of the like-for-like replacement, less anything you get for the old item. The original must have been provided for the tenant's use and must no longer be used in the property. The first purchase of furniture for a let is not covered. You cannot claim this relief in a year where you use the £1,000 property allowance against the same income.

Capital Gains Tax when you sell

When you sell a let property for more than it cost, the gain is taxed. The gain is the sale price less the purchase price, buying and selling costs (stamp duty, legal fees, agent fees) and capital improvements.

At the time of writing:

The 60-day rule. If you are UK resident and there is tax to pay, you must report the sale and pay the tax within 60 days of completion, through a UK property account with HMRC. Non-residents must report every UK property sale within 60 days, even with no tax due. Missing the deadline brings penalties and interest. If you once lived in the property, private residence relief may cover part of the gain.

Making Tax Digital for Income Tax

From 6 April 2026, landlords and sole traders with qualifying income over £50,000 must use Making Tax Digital for Income Tax. HMRC decided who is in scope from the 2024 to 2025 Self Assessment return. The threshold falls to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028.

Qualifying income is your gross income from property and self-employment, before expenses, so a landlord with rents above the threshold is in scope even if the profit is small. Joint owners count their own share. Those in scope must:

• keep digital records of income and expenses in compatible software,
• send a quarterly update to HMRC, and
• submit a final declaration after the tax year in place of the old return.

A letting agent's statements make digital records easier, but the obligation stays with the landlord. Check your position with HMRC or your accountant.

Holiday lets and furnished lets

The furnished holiday lettings tax regime was abolished from 6 April 2025. Holiday lets and furnished long-stay lets are now taxed under the same property income rules as any other let: finance costs get the 20% credit, and replacement of domestic items relief applies. Our buy-to-let guide compares the routes.

Keeping it simple

• Keep every invoice and statement, digitally, from the start of the tax year.
• Separate the letting bank account from your personal one.
• Note capital improvements in a permanent file: they reduce the gain when you sell.
• Diary the dates: 31 January for Self Assessment, quarterly updates under MTD, and 60 days from any sale.

When we manage a property, monthly statements show rent received and every cost deducted, which your accountant can use directly. See property management and our fees.