HMO Tax & Profit Calculator

An HMO is a property rented to 3 or more tenants who form more than one household and share facilities (kitchen, bathroom). Examples include bedsits, shared student houses, and professional house shares. Properties with 5+ residents forming 2+ households in 3+ storeys require a mandatory HMO licence.

HMOs are taxed as standard property income — income tax applies on net profit. Section 24 (Finance Act 2015) restricts mortgage interest deduction for residential lettings (including HMOs). The interest restriction applies to individual landlords; companies can still deduct mortgage interest in full.

Section 24 prevents individual landlords from deducting mortgage interest against rental income. Instead, you get a basic rate (20%) tax credit on the interest. For higher-rate (40%) or additional-rate (45%) taxpayers, this significantly increases the effective tax on rental profits — you pay tax on income you don't actually receive.

Allowable expenses include: letting agent fees, management fees, insurance, routine maintenance and repairs, utilities paid by landlord, HMO licence costs, accounting fees, professional legal fees for tenant disputes, and replacement of domestic items (furniture/white goods at actual cost from 2016).

No — Replacement of Domestic Items Relief (RDIR) applies instead of capital allowances for residential lettings. You can claim the cost of replacing furniture, appliances, and furnishings on a like-for-like basis. Initial furnishing of a new HMO is not deductible; only replacements qualify.

For many higher-rate taxpayer landlords, owning HMOs through a limited company eliminates Section 24 (companies can deduct mortgage interest), and profits are taxed at 19–25% corporation tax rather than 40–45% income tax. Dividends drawn from the company are then taxed. There are significant setup, compliance, and stamp duty costs to consider.

The annual or periodic HMO licence fee is a revenue expense deductible against rental income. However, legal costs for obtaining the first HMO licence may be capital expenditure (not deductible). Renewal fees and ongoing compliance costs are fully deductible.

Yes — HMOs must meet the HMO Management Regulations: provide adequate kitchen, bathroom, and toilet facilities; maintain common areas; provide adequate means of escape from fire and appropriate fire safety equipment. Local authorities have additional conditions in their licensing schemes, including minimum room sizes (at least 6.51m² for one person).