Letting property turns you into a business for tax purposes whether or not you think of yourself as a landlord, and the rules have changed more in the last decade than in the thirty years before it. Mortgage interest is no longer deductible, holiday lets have lost their special treatment, Making Tax Digital is arriving by income band, and from April 2027 property income will be taxed at its own higher rates. This guide covers what a landlord with one or several properties needs to know for 2026/27, and what is coming next.
When you need to report
Rental income is reported on the UK property pages of a Self Assessment return. You must register and file if your gross rent exceeds £10,000 or your rental profit exceeds £2,500 in a tax year. Below £1,000 of gross rent the property allowance means no return is needed for that income at all. Registration is due by 5 October after the tax year in which the letting began, and the return and tax by 31 January.
How profit is calculated
Rental profit is rent received less allowable expenses, computed on the cash basis by default for individual landlords with gross rent under £150,000. Allowable expenses are costs incurred wholly and exclusively for the letting: letting agent fees, repairs and maintenance, buildings and contents insurance, ground rent and service charges, council tax and utilities you pay during voids, accountancy, legal fees for lets of a year or less, replacement of furniture and domestic items on a like-for-like basis, advertising, and travel to the property for management. Your own time and labour are not allowable, nor are improvements, nor the capital part of mortgage repayments.
The distinction between repairs and improvements matters. Replacing a worn kitchen with a modern equivalent is a repair and deductible; extending the kitchen or adding something that was not there before is an improvement and goes against the capital gain on sale instead. Mixed invoices are split.
Finance costs
Since April 2020 individual landlords cannot deduct mortgage interest, arrangement fees or other finance costs from rental profit. Instead they receive a tax reduction equal to 20% of the finance costs, capped at the lowest of the finance costs, the property profits and the taxable income above the personal allowance, with any unused amount carried forward. For a basic rate taxpayer the result is roughly the same as the old deduction. For a higher rate taxpayer it is substantially worse, and because rental profit is now calculated before interest, total income can be pushed into a higher band or over the £100,000 personal allowance taper and the £60,000 Child Benefit threshold by interest that is then only relieved at 20%.
The rates, now and from 2027
For 2026/27 rental profit is taxed at the ordinary income tax rates: 20%, 40% and 45% after the personal allowance, or the Scottish bands for Scottish residents. From 6 April 2027 property income in England, Wales and Northern Ireland will be taxed at separate property rates two percentage points higher: 22%, 42% and 47%. The Autumn Budget 2025 announced the change and the legislation is in train; the Scottish Parliament sets its own rates for Scottish residents. Landlords should expect the first return under the new rates to be the one filed by 31 January 2029.
Joint ownership
Married couples and civil partners who own property jointly are taxed on the income 50/50 regardless of their actual shares, unless they own in unequal shares and file Form 17 with evidence of the beneficial ownership, after which they are taxed on their actual shares. Unmarried joint owners are taxed on their actual shares. Where one owner is in a lower tax band, the split can make a real difference and is worth arranging deliberately.
The property allowance and rent-a-room
The first £1,000 of gross rental income each year is tax free under the property allowance. Above £1,000 you can either deduct actual expenses or deduct the £1,000 allowance, whichever gives the lower profit. Letting a furnished room in your own home is covered separately by rent-a-room relief, which exempts the first £7,500 a year, or £3,750 each for joint owners; above that you pay tax on the excess over £7,500 or on actual profit.
Furnished holiday lets
The furnished holiday let regime ended on 5 April 2025. Holiday lets are now ordinary property income: the finance-cost restriction applies, capital allowances on furniture are replaced by replacement relief, and the capital gains reliefs that treated holiday lets as business assets are withdrawn, with transitional rules for existing losses and capital allowance pools.
Making Tax Digital
Landlords with combined gross property and self-employment income over £50,000 on their 2024/25 return joined Making Tax Digital for Income Tax in April 2026, and must keep digital records and send quarterly updates to HMRC. The threshold falls to £30,000 in April 2027 and is planned to reach £20,000 in April 2028. Jointly owned property has simplified quarterly reporting. See our MTD timeline.
Selling
A gain on a residential property that was not your main home for the whole period of ownership is taxed under Capital Gains Tax at 18% or 24% after the £3,000 annual exempt amount, and must be reported and the tax paid within 60 days of completion through HMRC's dedicated service, separately from the annual return. Private residence relief covers periods you lived in the property plus the final nine months. Our capital gains service handles the 60-day return.
Companies
Holding property through a company deducts mortgage interest in full and pays Corporation Tax at 19% to 25%, but extracting profit costs dividend tax, mortgages are dearer and moving existing properties into a company triggers Capital Gains Tax and Stamp Duty Land Tax. It tends to suit higher-rate taxpayers building a portfolio from scratch rather than owners of one or two existing properties.
Non-resident landlords
Living abroad does not remove UK tax on UK rental income. Letting agents or tenants must deduct 20% at source unless you are approved under the Non-Resident Landlord Scheme to receive rent gross, rising to 22% from April 2027 in line with the new property basic rate. The personal allowance remains available to most non-residents.
Getting it done
Our landlord accounts and tax return service is £149 for one property, £199 for two to four and £299 for a portfolio, including the Self Assessment filing, the finance-cost credit and the joint-ownership split. The deadline finder lists the dates.
A worked example
A higher-rate taxpayer lets one flat for £14,400 a year with £6,000 of mortgage interest and £2,400 of other allowable costs. Rental profit for tax is £12,000, because interest is not deducted. At 40% the tax on the profit is £4,800, less the finance-cost credit of 20% of £6,000, £1,200, giving £3,600 net. Under the pre-2017 rules the same landlord would have paid 40% on £6,000, £2,400. The restriction has cost her £1,200 a year, and from April 2027 the property higher rate of 42% adds another £240. If her spouse is a basic rate taxpayer and the flat is transferred into joint names with a Form 17 election for, say, a 90/10 split in his favour, the bulk of the profit is taxed at 20% with the same 20% credit, and the saving is substantial.
Records to keep
A rent book or ledger for each property, agent statements, tenancy agreements, mortgage statements showing interest separately, invoices for every repair and purchase, insurance schedules, and evidence of any period the property was your main home. Keep them for five years after the 31 January deadline. Under Making Tax Digital the income and expense records must be kept in compatible software from your start date, which is a change for landlords who have managed with an annual spreadsheet.
Losses
A rental loss cannot be set against other income. It is carried forward against future rental profits from the same property business, so a year of heavy repairs is not wasted but is relieved only when the business returns to profit. Losses on a furnished holiday let that existed before April 2025 are carried forward into the general property business under the transitional rules.