Rental income tax, mortgage interest relief, allowable expenses, CGT on selling and Making Tax Digital — the complete tax guide for UK landlords.
The tax landscape for UK landlords has shifted dramatically over the past decade. The removal of mortgage interest relief, higher stamp duty on second properties, and the looming arrival of Making Tax Digital have all increased the tax burden and administrative complexity of being a landlord.
Understanding the rules thoroughly — and making use of every allowable deduction — is essential to running a profitable buy-to-let portfolio in 2026.
Rental income from UK property is taxed as income. It is added to your other income (salary, pension, self-employment profit) and taxed at your marginal rate — 20% basic rate, 40% higher rate, or 45% additional rate.
There is no separate rental income tax rate. If your total income (including rent) exceeds £50,270, you pay 40% tax on the excess. This catches many landlords who receive modest salaries but significant rental income.
If your total rental income is £1,000 or less in a tax year, you do not need to declare it or pay tax on it. This applies to casual or occasional rental income — for example renting out a parking space or a driveway.
If your income exceeds £1,000, you cannot use this allowance and must declare all rental income on a self assessment return.
Estimate your income tax on rental profits for 2026/27
This is the single most important tax change for landlords in recent history and it still catches many by surprise. Before April 2017, landlords could deduct their mortgage interest directly from rental income before calculating their tax bill. This has been completely removed.
Under the current rules (fully phased in since April 2020), individual landlords can no longer deduct mortgage interest as an expense. Instead, they receive a basic rate (20%) tax credit on their finance costs.
For basic rate taxpayers, the effect is broadly neutral. But for higher rate taxpayers, the change is significant. Previously, a higher rate taxpayer paying £10,000 in mortgage interest would have received £4,000 in tax relief (40%). Now they receive only £2,000 (20% credit) — an extra £2,000 in tax per £10,000 of mortgage interest.
The change also means that rental income is now assessed on the gross rent received (not net of mortgage interest), which can push landlords into a higher tax band or reduce their personal allowance even if they are not actually profitable after mortgage costs.
While mortgage interest is no longer fully deductible, most other genuine business expenses can still be deducted from rental income before tax. Keeping thorough records of these is essential.
Allowable expenses include:
Capital improvements are not allowable expenses — these are changes that add value to the property, such as an extension, a new bathroom or a loft conversion. These can only be offset against CGT when you eventually sell the property. The distinction between a repair (allowable) and an improvement (not allowable) can be a grey area — a like-for-like kitchen replacement is a repair, but upgrading from a basic kitchen to a premium one is partly an improvement.
If you replace a domestic item in a furnished rental property — such as a sofa, washing machine, cooker or curtains — you can claim tax relief on the cost of the replacement (not the original purchase). This replaced the old “wear and tear allowance” in 2016.
The relief is calculated on the cost of a like-for-like replacement. If you upgrade to a better item, you can only claim the cost of an equivalent replacement item, not the full cost of the upgrade.
If your allowable expenses (excluding the mortgage interest credit) exceed your rental income in a tax year, you make a property loss. This loss can be carried forward and offset against future property income — but it cannot be offset against other income such as your salary.
This is an important distinction. If you have a loss-making buy-to-let, you cannot use that loss to reduce the tax on your employment income. You must carry it forward until you have positive rental income in a future year.
When you sell a buy-to-let property, any profit above your CGT annual allowance (£3,000 in 2026/27) is subject to capital gains tax. The rates for residential property are:
| Taxpayer | CGT rate on residential property |
|---|---|
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
The gain is calculated as the sale price minus the original purchase price, minus the costs of buying and selling (stamp duty, legal fees, estate agent fees), minus any capital improvements made during ownership.
If the property was your main home at any point, you may be entitled to Private Residence Relief (PRR) which exempts part of the gain from CGT. The calculation is based on the proportion of time you lived there as your main residence.
Critically, CGT on UK residential property must be reported and paid to HMRC within 60 days of completion. This is much faster than the old system of waiting until your self assessment tax return. Missing this deadline results in interest and penalties.
Calculate the CGT on selling your buy-to-let property
Making Tax Digital (MTD) for Income Tax is being rolled out to landlords based on their rental income:
| Total income (rent + self-employment) | MTD start date |
|---|---|
| Over £50,000 | April 2026 — already required |
| £30,001–£50,000 | April 2027 |
| £20,001–£30,000 | April 2028 |
Under MTD, landlords must use HMRC-approved software to keep digital records and submit quarterly updates to HMRC throughout the year, replacing the annual self assessment return with a more frequent process.
If you are already in scope (rental income over £50,000 combined with any self-employment income), you should already be enrolled. If not, prepare now — software such as QuickBooks, Xero or FreeAgent all support MTD for landlords.
One of the most common questions landlords ask is whether to hold property personally or through a limited company. There is no universal right answer — it depends on your individual tax position, portfolio size and long-term plans.
If you receive rental income, you must complete a self assessment tax return each year. Key deadlines:
| Deadline | What is due |
|---|---|
| 5 October 2026 | Register for self assessment if new to it |
| 31 October 2026 | Paper tax return for 2025/26 |
| 31 January 2027 | Online tax return for 2025/26 and tax payment |
| 31 July 2027 | Second payment on account for 2026/27 |
Late filing incurs a £100 penalty immediately, with further daily penalties after 3 months and percentage-based penalties after 6 and 12 months. Late payment incurs interest from the day the tax was due.