Landlord Tax Guide 2026/27

Allowable Expenses for Landlords

Landlords can deduct a wide range of expenses from rental income to arrive at their taxable profit. Allowable expenses include: repairs and maintenance (but not improvements or capital expenditure), buildings and contents insurance, landlord liability insurance, letting agent fees and management charges, legal fees for tenancy agreements and rent recovery (but not for buying or selling the property), accountancy fees, ground rent and service charges, utility bills and council tax (if paid by the landlord on behalf of the tenant), cleaning and gardening between tenancies, advertising for tenants, travel expenses for property visits (actual cost, not mileage allowance), and professional fees for gas safety certificates, EPCs, and electrical safety certificates. The replacement of domestic items relief allows landlords to claim the cost of replacing furnishings, appliances, and kitchenware in a furnished property — but not the initial cost of furnishing a property for the first time. Landlords should keep detailed records of all expenses with receipts, invoices, and bank statements to support their claims. HMRC can request evidence of expenses up to 6 years after the filing deadline. If you have a property portfolio, using dedicated business bank accounts and accounting software makes record-keeping much more manageable and reduces the risk of errors on your tax return.

Finance Cost Relief and Section 24

The Section 24 restriction on finance cost relief is one of the most significant changes affecting UK landlords. Since 2017/18, mortgage interest and other finance costs are not deductible from rental income. Instead, landlords receive a basic-rate tax reduction of 20% of their finance costs, deducted from their income tax liability. This means higher-rate (40%) and additional-rate (45%) taxpayers no longer save tax at their marginal rate on mortgage interest. The restriction applies to all residential property income, including buy-to-let properties, single lets, and multiple property portfolios. It does not apply to furnished holiday lettings, commercial property, or properties held through a company. For landlords with significant mortgage debt, the restriction can add thousands of pounds to the annual tax bill. The basic-rate tax reduction is calculated as 20% of the lower of: finance costs for the year, net property income (after all other deductions), or total income (after personal allowance and other reliefs). Any finance costs that cannot be relieved in the current year (because the tax reduction would exceed the tax liability) can be carried forward to future years. Many affected landlords have responded by increasing rents, reducing debt, or incorporating their portfolio into a limited company where finance costs remain fully deductible.

Self Assessment for Landlords

If you receive rental income of more than £1,000 in a tax year, you must register for Self Assessment and file a tax return. Rental income is reported on the SA105 UK property pages, which require details of total rents received, allowable expenses, finance costs, and net profit. If you have furnished holiday lettings, these are reported separately on the same pages. The filing deadline is 31 October (paper returns) or 31 January (online returns) following the end of the tax year. For 2026/27, the online filing deadline is 31 January 2028. Late filing penalties start at £100 and escalate with delay. Payment deadlines are 31 January (first payment on account) and 31 July (second payment on account) during the tax year, with the balancing payment due by the following 31 January. If your rental profit is relatively small, HMRC may be able to collect the tax through your tax code (adjusting your PAYE code) rather than requiring payments on account. This applies if your total tax liability (including rental income) is less than £3,000 and your rental income is less than your PAYE income. Making Tax Digital (MTD) for income tax is being phased in, with landlords and sole traders with income over £50,000 required to maintain digital records and submit quarterly updates from April 2026. Planning for digital record-keeping now will ease the transition to MTD.

Stamp Duty Surcharges

Landlords purchasing additional residential properties face a 5% SDLT surcharge on top of standard rates (2026/27 rate, increased from 3% in 2016). This means the effective SDLT rates for buy-to-let purchases are: 5% on the first £250,000, 10% on the portion up to £925,000, 15% up to £1.5 million, and 17% above £1.5 million. The surcharge applies to anyone who already owns one or more residential properties. If you are replacing your main residence, the surcharge does not apply, but if you buy before selling, you must pay the surcharge and claim a refund when the old property sells (within 36 months). The surcharge also applies to purchases by companies, trusts, and partnerships, with limited exceptions. Non-resident landlords also face an additional 2% surcharge, meaning a non-resident buying a buy-to-let property pays a total surcharge of 7% on top of standard rates. The SDLT surcharges have significantly increased the cost of portfolio expansion for landlords and have been a key factor in the slowdown of the private rented sector's growth since 2016.

Capital Gains Tax on Property Disposal

When a landlord sells a rental property, Capital Gains Tax is payable on the increase in value. The rates are 18% (basic rate) and 24% (higher rate) for the 2026/27 tax year. The annual exempt amount is £3,000. The gain is calculated as: sale proceeds minus purchase price minus allowable costs (SDLT, legal fees, and capital improvements). The disposal must be reported to HMRC within 60 days of completion using the online PPD return, with estimated CGT paid within the same window. Landlords who have owned properties for many years may face significant CGT bills, particularly given the reduction in the annual exempt amount from £12,300 to £3,000. Principal Private Residence Relief does not apply to buy-to-let properties (unless the landlord previously lived there), and Letting Relief is now restricted to cases where the landlord shared occupancy with the tenant. Selling a portfolio of properties in a single tax year can result in substantial CGT because only one annual exempt amount applies per person. Spreading disposals across tax years and utilising both spouses' annual exempt amounts can reduce the overall CGT burden. Professional advice on CGT planning, including the timing of disposals and the use of losses, is strongly recommended.

Incorporation for Landlords

Many landlords have moved their portfolios into limited companies to avoid the Section 24 mortgage interest restriction and benefit from corporation tax rates (19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief in between). A property company can deduct mortgage interest as a trading expense, pay corporation tax rather than income tax on profits, and pay dividends to shareholders (taxed at dividend rates of 8.75%/33.75%/39.35% depending on the shareholder's income band). However, incorporation involves significant costs: SDLT may be payable on transferring properties to the company; Capital Gains Tax may be triggered (though incorporation relief may defer it); annual accounting and filing costs are higher; and mortgage funding for companies is more expensive than for individuals (typically higher interest rates and arrangement fees). Incorporation is most beneficial for higher-rate and additional-rate taxpayers with significant mortgage debt and a growing portfolio of at least 3–5 properties. For basic-rate taxpayers or those with low or no mortgage debt, remaining as an individual landlord is usually simpler and more cost-effective. The decision to incorporate should be based on a detailed financial analysis of your specific circumstances, including the size of your portfolio, your marginal tax rate, your long-term plans, and your access to company-level mortgage finance.

HMRC Compliance and Record-Keeping

HMRC has increased its focus on the property sector, using data from letting agents, tenancy deposit schemes, and land registry records to identify landlords who are not declaring rental income. Landlords must maintain accurate records of all income and expenses for at least 6 years after the tax year end. Records should include: tenancy agreements, rent receipts and bank statements, invoices and receipts for expenses, mortgage statements showing interest paid, and records of capital expenditure on property improvements. Digital record-keeping is increasingly important with the rollout of Making Tax Digital. Penalties for non-compliance can be severe: late filing penalties of £100 rising to £1,600 or more; late payment interest at HMRC's rate (currently 7.25%); and penalties for inaccurate returns of up to 100% of the tax underpaid in cases of deliberate error. HMRC can also charge penalties for failure to notify chargeability (i.e., not registering for Self Assessment when required), starting at 5% of the tax due up to 100% in serious cases. Landlords who have undeclared rental income should consider HMRC's voluntary disclosure facilities, which can result in lower penalties than if HMRC opens an investigation. Professional advice from a qualified accountant with property expertise is strongly recommended for any landlord with a significant portfolio or complex tax affairs.

FAQs

Do I need to register for Self Assessment as a landlord?

Yes, if your gross rental income exceeds £1,000 in a tax year. You can register online at GOV.UK. If your income is £1,000 or less, it is covered by the property allowance and you do not need to register.

Can I still offset mortgage interest against rental income?

Not directly. You receive a 20% tax credit on your mortgage interest instead of deducting it from rental income. This was introduced by Section 24 of the Finance Act 2015 and phased in between 2017 and 2020.

Is it better to hold property in a limited company?

For higher-rate taxpayers with significant mortgage debt, a company can be more tax-efficient. For basic-rate taxpayers with low debt, personal ownership is usually better. Professional advice is essential before incorporating.

What records must landlords keep for HMRC?

You must keep records of all income and expenses for at least 6 years after the tax year end, including rent receipts, invoices, bank statements, mortgage statements, and tenancy agreements.