A great many of our clients have one rental property. Sometimes it is the flat they lived in before they bought a house. Sometimes it is a buy to let they picked up as a pension. Either way, the rent has to go on a Self Assessment tax return, and the rules for what you can take off it are not the same as the rules for a trade. Here is how rental income is taxed for the 2025 to 2026 tax year, which is the return due by 31 January 2027.
One note before we start. The Budget is on 28 October 2026, and landlords are often mentioned in the run up to one. Everything below is the law as it stands today. If the Budget changes any of it, we will update this page and say what moved.
Do you need to report it at all?
If your total rent for the year was £1,000 or less, you are covered by the property allowance and there is nothing to report. The allowance applies automatically.
Above £1,000 you need to tell HMRC. If this is your first year with rental income and you have never filed a return, you were meant to register by 5 October 2026. If that date has passed, register now rather than waiting until January. Our guide to registering for Self Assessment explains what a late registration actually costs, which in most honest cases is nothing.
The property allowance works as an alternative to claiming expenses, not on top of them. If your rent is above £1,000 you can either take £1,000 off the gross rent and claim nothing else, or claim your actual costs. For most landlords with a mortgage and a letting agent, the actual costs are far higher than £1,000, so the allowance is only worth using for very small lettings such as a parking space or a garage.
Start with the rent, then take off the running costs
Tax is charged on your rental profit, which is the rent you received less the costs of letting the property. Most landlords work this out on the cash basis, counting rent when it arrives and costs when they are paid. The cash basis is the default for individual landlords with rental receipts up to £150,000 a year, and you can tick a box on the return to use traditional accounting instead if you prefer.
The costs you can claim are the day to day costs of being a landlord:
- Letting agent fees and management charges.
- Landlord insurance, including buildings insurance and rent guarantee cover.
- Repairs and maintenance, such as fixing a boiler, repainting, or replacing a broken window.
- Ground rent and service charges on a leasehold flat.
- Council Tax, gas, electricity and water, in any period when you pay them rather than the tenant.
- Gas safety certificates, electrical checks and energy performance certificates.
- Legal fees for a tenancy agreement of a year or less, and accountancy fees for the rental business.
- Advertising for tenants, and the cost of phone calls and travel to the property for the business.
The test is whether the cost was incurred wholly and exclusively for the letting. If a cost is partly personal, you claim the business share only.
Repairs are allowed, improvements are not
This is the line that causes the most arguments with HMRC, so it is worth getting clear.
A repair puts something back to the condition it was in. Replacing a cracked tile, mending a fence, or swapping a tired kitchen for a modern equivalent of the same standard are repairs, and you claim the full cost in the year you pay it.
An improvement makes the property better than it was. Building an extension, converting a loft, or replacing a basic kitchen with a much larger and more expensive one is capital spending. You cannot claim it against the rent. Instead, it is added to the cost of the property and reduces your Capital Gains Tax when you eventually sell.
Keep the invoices for improvements as carefully as the invoices for repairs. They are worth money, just not this year.
Furniture and appliances have their own rule
If you let the property furnished, or provide white goods, there is a specific relief for replacing them. The relief covers things like sofas, beds, carpets, curtains, fridges, washing machines and crockery that the tenant has the use of.
The relief is for replacements only. The first time you furnish a property, nothing is claimable. When you replace an item later, you claim the cost of a like for like replacement, less anything you got for the old one. If you upgrade, you claim what the equivalent item would have cost, not the price of the better one.
Mortgage interest is the odd one out
Most landlords expect to take their mortgage interest off the rent in the same way as any other cost. Since April 2020 that is no longer how it works, and the difference matters more the more you earn.
Mortgage interest, and any other finance cost such as arrangement fees, is not deducted from your rental income. Instead, you work out the tax on your profit before interest, and then HMRC knocks 20 per cent of the interest off your tax bill as a tax credit. Only the interest counts, never the capital part of the repayment.
Here is what that does in practice. Take a property with £12,000 of rent, £2,000 of ordinary running costs and £6,000 of mortgage interest.
| Basic rate landlord | Higher rate landlord | |
|---|---|---|
| Rental profit before interest | £10,000 | £10,000 |
| Income Tax on that profit | £2,000 | £4,000 |
| Less 20 per cent of £6,000 interest | £1,200 | £1,200 |
| Tax to pay | £800 | £2,800 |
| Tax under the old rules, interest deducted in full | £800 | £1,600 |
For a basic rate taxpayer the answer is the same either way. For a higher rate taxpayer the bill on this one property is £1,200 higher than it would have been under the old rules.
There is a second effect that catches people who are nowhere near the higher rate on paper. Because the profit before interest is what counts as your income, a landlord with a salary of £45,000 and the property above has income of £55,000 for tax purposes, not £49,000. That can push you into the higher rate, cost you some of your Child Benefit, or start to remove your personal allowance if you are near £100,000. The tax credit also cannot be bigger than 20 per cent of your rental profit for the year. If the property makes a loss, the unused interest is carried forward to a later year.
This is the single biggest reason landlords with a large mortgage and a decent salary ask us about holding property through a company. A company deducts its interest in full. The answer depends on a great deal more than the interest, though, and moving an existing property into a company is expensive, so it is a calculation rather than a rule.
If you make a loss
If your costs are higher than your rent in a year, the loss does not disappear. It is carried forward and set against your next rental profit. It cannot be set against your salary or your self-employment, and you have to claim it on the return for the loss to be recorded, so do not skip the property pages in a bad year.
If you own the property with someone else
Married couples and civil partners who own a property jointly are taxed on half the profit each, whatever the mortgage or the deposit looked like. If you genuinely own it in unequal shares and you want to be taxed that way, you have to tell HMRC with a signed declaration before it takes effect. Done properly, this can move rental profit from a higher rate spouse to a basic rate one, which is one of the few bits of landlord planning that is both simple and legitimate.
Joint owners who are not married are taxed on their actual shares, and each person files their own property pages.
Letting a room in your own home is different
If you let a furnished room in the house you live in, the Rent a Room scheme applies instead. The first £7,500 a year is tax free, or £3,750 each if you share the income with someone else. Below that there is nothing to report. Above it, you complete a return and choose between paying tax on the amount over £7,500 or working out your profit in the normal way.
The scheme only covers your own home. A flat you own and do not live in, including a holiday let, uses the ordinary rules above, and the £1,000 property allowance rather than the £7,500 figure.
If you run a holiday let, the separate furnished holiday lettings regime ended on 6 April 2025, so the 2025 to 2026 return is the first full year in which holiday lets are taxed exactly like any other rental property. The capital allowances and the full interest deduction that came with the old regime have gone.
This return also decides whether Making Tax Digital starts for you
HMRC uses your 2025 to 2026 return to decide whether Making Tax Digital for Income Tax applies to you from April 2027. The test is gross income from property and self-employment added together, before any costs come off, and the line for April 2027 is £30,000.
Rent counts in full. A landlord with £20,000 of rent and £15,000 of self-employed income is over the line, even if the property barely makes a profit. For a jointly owned property only your share counts, so a couple splitting £40,000 of rent are at £20,000 each and are not caught until April 2028.
If you are over the line, you will be keeping digital records and sending HMRC a quarterly update for the property from next April. Our guide to quarterly updates explains what one looks like. It is far easier to find that out now, from a return filed in the autumn, than from a letter in March.
When you sell
Selling a rental property brings in Capital Gains Tax. The rates on residential property are 18 per cent for gains within your basic rate band and 24 per cent above it, after a tax free amount of £3,000 for the year. The gain has to be reported and the tax paid within 60 days of completion, through a separate online return, which is a much shorter deadline than most people expect. It goes on your Self Assessment return as well.
This is where the invoices for improvements come back into play. Every pound of capital spending you can evidence comes off the gain.
What we need from you
For a typical one property landlord, the list is short:
- The rent received for the year to 5 April 2026, which a letting agent’s annual statement usually covers.
- The mortgage interest for the year, from the lender’s annual statement. Interest only, not the whole payment.
- Invoices for repairs, insurance, safety certificates and anything you replaced.
- Service charge and ground rent statements for a leasehold flat.
- Any period the property was empty, and whether you were paying the Council Tax and utilities in that time.
If the property was bought or sold during the year, we need the completion statement for that as well.
We do the property pages properly, in the autumn
Most of the rental returns we see from new clients have something wrong with them. Mortgage payments claimed in full, an improvement claimed as a repair, a loss never carried forward, or interest left off entirely because the landlord did not know the tax credit existed. None of these are difficult to get right, but they need someone who does it every week.
We prepare the return early, claim everything you are entitled to, tell you what you owe in October rather than January, and tell you now whether Making Tax Digital starts for you next April. There is no extra charge for picking up the phone to ask whether a cost counts.
If you would like your rental income handled properly this year, Get your instant quote and see your fixed monthly fee in under a minute.