Tax Guide for Landlords (Single Property)

Rental income is added to your other income (salary, pension, etc.) and taxed at your marginal rate — 20% basic rate, 40% higher rate, or 45% additional rate. A landlord with £12,000 net rental profit and a £40,000 salary would pay 40% tax on the rental income because it falls in the higher-rate band.

2026-27 Income Tax rates:

• Personal Allowance: £12,570 tax-free (but you likely already use this against your salary).
• Basic rate (20%): Total income from £12,570 to £50,270.
• Higher rate (40%): Total income from £50,270 to £125,140.
• Additional rate (45%): Total income above £125,140.

Important: Rental income is not subject to National Insurance contributions. You do not pay Class 2 or Class 4 NI on property income — only on trading income from a self-employed business. This is one area where landlords have an advantage over self-employed tradespeople.

Example: You earn £35,000 from your job and £12,000 net rental profit. Total income is £47,000. Tax on salary is handled through PAYE. The £12,000 rental profit is taxed at 20% (because your total income is within the basic-rate band) = £2,400 in tax on the rental income.

Section 24 means individual landlords can no longer deduct mortgage interest from rental income. Instead, you receive a basic-rate (20%) tax credit on the interest paid. This makes no difference to basic-rate taxpayers but significantly increases the tax bill for higher-rate (40%) and additional-rate (45%) taxpayers.

Here is how it works in practice:

1. Calculate your rental profit without deducting mortgage interest.
2. Pay Income Tax on that full profit at your marginal rate.
3. Receive a 20% tax credit on the mortgage interest paid.

Worked example — Higher-rate taxpayer:

• Rental income: £12,000/year
• Allowable expenses (excluding mortgage interest): £2,000
• Mortgage interest: £6,000/year
• Rental profit for tax purposes: £12,000 - £2,000 = £10,000
• Tax at 40%: £4,000
• Section 24 credit (20% of £6,000): -£1,200
• Net tax: £2,800

Before Section 24, this landlord would have declared £4,000 profit (£12,000 - £2,000 - £6,000) and paid £1,600 tax at 40%. Section 24 has increased their tax from £1,600 to £2,800 — a 75% increase.

Section 24 does not apply to: limited companies (which can still deduct mortgage interest as an expense), furnished holiday lettings (different rules apply), or commercial property. This is why some landlords have incorporated — but incorporation has its own costs and complications.

Landlords can deduct any expense that is wholly and exclusively for the purpose of letting the property. The main allowable categories are repairs, insurance, professional fees, and compliance costs — but not capital improvements or mortgage interest (see Section 24 above).

Allowable expenses include:

• Repairs and maintenance: Fixing leaks, repainting, replacing broken items on a like-for-like basis.
• Insurance: Buildings, contents (if furnished), landlord liability, rent guarantee.
• Letting agent fees: Management commission, tenant-find fees.
• Legal and professional fees: Tenancy agreement drafting, eviction proceedings, accountant fees.
• Compliance costs: Gas safety certificates, EPC, EICR, smoke/CO alarms, licensing fees.
• Council tax during void periods: When the property is empty and you are paying the council tax.
• Ground rent and service charges: For leasehold properties.
• Travel to the property: Mileage at 45p/mile for inspections, repairs, tenant meetings.
• Advertising: OpenRent, Rightmove (via agent), local ads.
• Replacement of domestic items: Like-for-like replacement of furniture, appliances, and soft furnishings in furnished lets.

Not allowable against rental income:

• Mortgage interest (Section 24 tax credit instead)
• Capital improvements (better kitchen, extension, new bathroom)
• Purchase costs (stamp duty, solicitor, survey) — these reduce CGT on sale
• Your own time or labour
• Clothing or personal expenses

A repair restores the property to its previous condition and is deductible against rental income. An improvement enhances the property beyond its previous state and is capital expenditure — deductible only against Capital Gains Tax when you sell.

HMRC's test is straightforward: are you restoring what was there before, or are you making it better?

• Repair (deductible): Replacing a broken single-glazed window with a new single-glazed window. Repainting walls. Fixing a leaking roof. Replacing a broken boiler with an equivalent model.
• Improvement (capital): Replacing single-glazed windows with double glazing. Adding central heating where there was none. Converting a loft into a bedroom. Replacing a basic kitchen with a premium one.
• Grey area: Replacing a broken boiler with a modern condensing boiler. HMRC generally accepts this as a repair because the modern equivalent of the old boiler is a condensing boiler — you cannot buy the old type any more. The key principle: a "modern equivalent" replacement is usually treated as a repair.

If a project involves both repair and improvement (e.g. replacing a kitchen where 70% is like-for-like and 30% is upgrade), you should split the cost. Claim the repair portion as a revenue expense and treat the improvement portion as capital. Keep detailed records and photos showing the before and after state.

Yes. When you sell a rental property, you pay Capital Gains Tax (CGT) on the gain — the difference between the purchase price (plus allowable costs) and the sale price. The CGT rate for residential property is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers (2026-27 rates).

You can reduce your CGT bill by deducting:

• Purchase costs: Stamp duty, solicitor fees, survey fees.
• Sale costs: Estate agent fees, solicitor fees, EPC for sale.
• Capital improvements: Kitchen upgrade, bathroom installation, extension, double glazing — anything that enhanced the property and was not claimed as a revenue expense.
• Annual Exempt Amount: £3,000 per person for 2026-27 (reduced from £6,000 in 2023-24).

Reporting deadline: You must report the disposal and pay CGT within 60 days of completion using HMRC's Capital Gains Tax on UK property service. Late reporting triggers penalties. This is separate from your annual Self Assessment return — you must do both.

Private Residence Relief: If you lived in the property before letting it, you may qualify for partial Private Residence Relief. The final 9 months of ownership are always exempt (regardless of whether you lived there), plus any period you occupied it as your main home.

The main deadline is 31 January — this is when your online Self Assessment return is due and when the tax must be paid. Missing this triggers an automatic £100 late-filing penalty even if you owe no tax.

Key dates for landlords:

• 5 April: Tax year ends. Rental income and expenses for 6 April to 5 April are reported.
• 5 October: Deadline to register for Self Assessment if this is your first year receiving rental income.
• 31 January: Online return deadline + payment of tax owed + first Payment on Account.
• 31 July: Second Payment on Account.
• 60 days after property sale: Report and pay Capital Gains Tax via the CGT on UK property service.

Payments on Account: If your total tax bill is over £1,000 and less than 80% was collected at source (e.g. through PAYE), HMRC will require two advance payments towards next year's liability, each 50% of the previous year's bill.

For landlords with PAYE employment income, you may be able to have the rental income tax collected through your tax code instead of making a separate payment. HMRC will do this automatically if your tax bill is under £3,000 and you file your return by 30 December. This spreads the cost across 12 months of salary deductions.