Calculate Your Rental Income Tax

Use our updated 2026/27 tax year calculator to estimate your landlord tax liability. This tool accounts for your non-property income to determine your tax band and applies the Section 24 mortgage interest restrictions automatically.

Comprehensive Guide to Landlord Taxes in 2026

Being a landlord in the UK involves significant tax responsibilities. With the full implementation of Section 24, frozen personal allowances, and evolving Capital Gains Tax rules, understanding your liability is crucial for maintaining a profitable portfolio. This guide covers everything from self-assessment to allowable expenses and the impact of the 2026 tax landscape.

1. How Rental Income is Taxed

In the UK, rental income is not taxed in isolation. Instead, it is added to your total income for the year, which includes your salary, pension, and dividends. The combined total determines which tax band you fall into. For the 2026/27 tax year (based on current legislation and frozen thresholds), the bands are typically:

• Personal Allowance: Up to £12,570 (0% tax).
• Basic Rate: £12,571 to £50,270 (20% tax).
• Higher Rate: £50,271 to £125,140 (40% tax).
• Additional Rate: Over £125,140 (45% tax).

Crucially, rental profit sits "on top" of your other income. If you earn £45,000 from a job and make £10,000 profit from property, that £10,000 pushes you into the Higher Rate band, meaning a portion of your rental income is taxed at 40%.

2. Section 24: The Mortgage Interest Restriction

The most significant change for landlords in the last decade is Section 24 of the Finance Act 2015, fully effective in 2026. Previously, landlords could deduct mortgage interest payments from their rental income before calculating tax. This meant you only paid tax on the actual profit.

How it works now: You pay income tax on the full rental income (minus operating expenses, but ignoring mortgage interest). Once your tax bill is calculated, you receive a tax credit equal to 20% of your mortgage interest payments.

Example Scenario

Consider a Higher Rate landlord earning £60,000 salary and £15,000 rental income with £12,000 mortgage interest costs.

• Old Rules: Taxable profit was £3,000 (£15k rent - £12k interest). Tax at 40% = £1,200.
• Current Rules (Section 24): Taxable profit is £15,000. Tax at 40% = £6,000. Less tax credit (20% of £12k) = £2,400. Final Tax Bill: £3,600.

In this example, the landlord's tax bill has tripled solely due to Section 24. This change has pushed many landlords into higher tax brackets artificially because their "paper profit" looks higher than their cash profit.

3. Allowable Expenses

To reduce your tax bill legally, you must claim all "wholly and exclusively" incurred expenses. Deducting these reduces the profit figure subject to tax.

• General Maintenance: Repairs to the property, such as fixing a broken boiler, repainting, or mending a roof. (Note: Improvements, like adding an extension, are capital costs, not income expenses).
• Insurance: Landlord building and contents insurance premiums.
• Professional Fees: Letting agent fees, management fees, accountant costs, and legal fees for lets of a year or less.
• Services: Ground rent, service charges, cleaning, and gardening services included in the rental agreement.
• Utilities: Gas, electricity, water, and council tax during void periods when the property is empty.

4. Replacement of Domestic Items Relief

The "Wear and Tear Allowance" (which allowed a flat 10% deduction) was abolished. It has been replaced by the Replacement of Domestic Items Relief. You can now only claim tax relief on the actual cost of replacing furnishings, appliances, and kitchenware.

This covers items like beds, carpets, curtains, fridges, and washing machines. You can claim the cost of the replacement, plus disposal costs of the old item. However, if you upgrade the item (e.g., replacing a laminate worktop with granite), you can only claim the cost of a like-for-like replacement.

5. The £1,000 Property Allowance

The government offers a tax-free property allowance of £1,000 per year. If your total expenses are less than £1,000, you can choose to deduct this flat £1,000 allowance instead of your actual expenses. This is useful for accidental landlords with very low costs but is rarely beneficial for portfolio landlords with significant maintenance or agent fees.

6. Furnished Holiday Lettings (FHL)

Furnished Holiday Lettings have historically been treated differently. Properties that meet specific criteria (available for 210 days, let for 105 days, no long-term lets) benefit from special rules. Historically, this allowed full mortgage interest deduction and capital allowances on furniture.

Note: The tax landscape for FHLs is volatile. While historically advantageous, recent budgets have aimed to align FHL tax treatments more closely with standard long-term lets to address housing shortages. Always check the very latest legislation for the current tax year, but generally, FHLs still offer distinct advantages regarding Capital Gains Tax reliefs (like Business Asset Disposal Relief) compared to standard lets.

7. Capital Gains Tax (CGT) on Property Sale

When you sell a rental property, you pay Capital Gains Tax on the profit (the difference between what you paid and what you sold it for). For residential property in the 2026 context:

• Rates: Higher and Additional rate taxpayers pay 28% on residential property gains. Basic rate taxpayers pay 18% (unless the gain pushes them into the higher band).
• Annual Exempt Amount (AEA): The tax-free allowance has been significantly reduced in recent years and stands at £3,000 for individuals.
• Deductions: You can deduct costs of buying and selling (stamp duty, solicitor fees, estate agent fees) and capital improvements (extensions, new windows) from the gain.

8. Self-Assessment Deadlines

You must report rental income via Self-Assessment. Key dates include:

• 5th October: Deadline to register for Self-Assessment if you haven't filed before.
• 31st January: Deadline for online filing and paying any tax owed for the previous tax year.
• 31st July: Deadline for "Payments on Account" (advance payments towards the next year's bill).

9. Tax Planning Strategies

Given the high tax burden, many landlords consider incorporation (buying property through a Limited Company). Companies pay Corporation Tax (typically 19-25%) rather than Income Tax, and Section 24 does not apply to companies, meaning mortgage interest is fully deductible. However, moving existing personal properties into a company triggers Stamp Duty and Capital Gains Tax, making it a complex calculation requiring professional advice.

Another strategy is transferring assets between spouses to utilize unused Personal Allowances or lower tax bands. If you own a property jointly, you can file "Form 17" to declare the beneficial interest split if it differs from 50/50, ensuring tax is paid by the partner with the lower marginal rate.

Disclaimer: This article provides general information and does not constitute financial advice. Tax laws change frequently. Always consult a qualified accountant or tax advisor regarding your specific situation.