Landlord income tax, explained with real numbers

If you let property in your own name, alone or with someone else, your rental profit is added to your other income and taxed like wages, with a few landlord-only twists that make the bill bigger than most people expect. This guide covers what you can deduct, the £1,000 property allowance, section 24 and the mortgage interest credit, the new property tax rates from April 2027, the £100,000 trap, joint ownership, Making Tax Digital, the end of furnished holiday lets, and when a limited company is worth modelling. Figures are for 2026-27, checked at gov.uk in September 2026. Run your own numbers in the landlord tax calculator.

How rental profit is taxed

Add up all your rent, take off allowable expenses, and the result is your property profit. All your UK lets count as one property business, so a loss on one flat is set against profit on another. An overall loss carries forward against future property profits only, not against your salary.

That profit sits on top of your other income. In England, Wales and Northern Ireland:

The personal allowance and basic-rate limit are frozen until 5 April 2031, so every rent rise pulls more landlords into higher rate without any change in the rules.

Scotland is different. Scottish taxpayers pay Scottish income tax on rental profit, with six bands from 19% to 48% in 2026-27. The 22/42/47 property rates apply in England, Wales and Northern Ireland, and the Scottish Parliament and the Senedd are being given powers to set their own property rates in future. If you live in Scotland, check the Scottish position before modelling 2027.

What you can deduct

Expenses must be wholly and exclusively for the letting. Allowable:

• Repairs and maintenance, including like-for-like replacement: a broken boiler, storm-damaged roof tiles, redecorating between tenants. Swapping single glazing for double glazing still counts as a repair.
• Letting agent and management fees, and landlord insurance.
• Bills you pay: council tax, water, gas and electricity.
• Ground rent and service charges.
• Accountant's fees, advertising for tenants, and legal fees for lets of a year or less.
• Replacing furniture, carpets, curtains and appliances (replacement of domestic items relief), but not buying them the first time.

Not allowable against rent:

• Improvements: an extension, a security system that wasn't there before, a higher-spec kitchen.
• Works to make a run-down property lettable after buying it cheaply because of its state.
• The capital part of mortgage payments.
• Mortgage interest as an expense (see section 24 below).

The catch with improvements: they're not lost, just deferred. Keep the receipts, because they come off your gain when you sell (see capital gains tax when you sell a rental).

The £1,000 property allowance

If your gross property income is £1,000 or less in a tax year, it's tax-free and you don't need to tell HMRC. Above that, you can deduct a flat £1,000 instead of your actual expenses. Joint owners each get their own £1,000 against their share.

Example: you rent out your driveway for £1,800 a year and your costs are £150. With the allowance, £800 is taxable. Claiming expenses, £1,650 is. The allowance wins.

The catch: you can't use it if you claim the mortgage interest credit, and it doesn't apply to income under Rent a Room (which separately lets you earn £7,500 a year tax-free from furnished accommodation in your own home). For most mortgaged landlords, actual expenses win.

Section 24: interest is a credit, not a deduction

Since 6 April 2020, individual landlords can't deduct mortgage interest, or fees for arranging the loan, from rental income. Instead you get a tax reduction worth 20% of the lowest of: your finance costs, your property profit, or your income above the personal allowance. Anything unused carries forward. From April 2027 the credit rises to 22%, matching the new property basic rate.

Basic-rate taxpayers barely notice. Higher-rate taxpayers pay 40% on profit that includes money spent on interest, and get 20% back. Limited companies aren't affected: they still deduct interest in full.

A worked example

Sam earns a £45,000 salary and lets one flat for £12,000 a year. Expenses are £2,500 and mortgage interest is £6,000, so his cash profit is £3,500.

His salary uses £32,430 of the £37,700 basic-rate band, leaving £5,270. His £9,500 taxable rental profit (rent minus expenses, interest ignored) fills that and spills £4,230 into higher rate.

If interest were still deductible, Sam's taxable profit would be £3,500, all at 20%: £700. Section 24 costs him £846 a year, and April 2027 adds another £70. Is buy-to-let still worth it? runs the same logic on a full deal.

The £100,000 trap

Your personal allowance shrinks by £1 for every £2 of adjusted net income over £100,000, and is gone at £125,140. On that slice, a higher-rate taxpayer pays an effective 60%. Because interest isn't deducted, it's your rental profit before interest that counts. A £95,000 salary plus £15,000 of rental profit is £110,000: £5,000 of allowance lost and £2,000 of extra tax, even if the mortgage means the flat barely breaks even in cash.

Joint ownership and Form 17

• Married couples and civil partners who live together are taxed 50:50 on jointly owned property by default, whatever the actual shares.
• If you genuinely own unequal shares, you can both sign Form 17 so income is taxed on your real shares, with evidence such as a declaration of trust. It must reach HMRC within 60 days of the last signature. HMRC has no power to extend that, a late form has no effect, and it only works from the signature date forward.
• It can't be used if you own as beneficial joint tenants, because you don't hold shares to declare.
• Unmarried co-owners are taxed on their ownership share unless they agree a different split.

Shifting income to a lower-earning partner is legitimate when the ownership is real. The catch: it has to be real, including their right to that share of the sale proceeds.

Making Tax Digital thresholds

MTD for Income Tax is tested on gross qualifying income (property plus self-employment, before expenses):

Joint owners count only their share. MTD changes how you report, not what you pay. Full detail in the MTD guide.

Furnished holiday lets: the regime is gone

From 6 April 2025 (1 April 2025 for companies), furnished holiday lettings lost their special tax treatment. They're now taxed like any other let: mortgage interest restricted to the basic-rate credit, no capital allowances on new spending (replacement of domestic items relief instead), no business asset reliefs on sale, and the profit no longer counts as earnings for pension relief. If you bought a holiday let on the old maths, rerun it.

When a limited company is worth modelling

A company pays corporation tax: 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between. It deducts mortgage interest in full and isn't touched by the 2027 property income rates.

The catch is getting money out, and getting property in:

• Dividends are taxed again: 10.75% at basic rate and 35.75% at higher rate from April 2026.
• Moving properties you already own into a company is treated as a sale at market value: capital gains tax for you, and stamp duty at the higher rates for the company.
• Company mortgages are a narrower market, often priced higher, though they pass the lender's rent test more easily (see the BTL mortgages guide).
• Accounts and filings every year, on top of your own tax return.

Worth modelling: higher-rate taxpayers with mortgaged properties who plan to buy more and reinvest the profit. Rarely worth it: basic-rate taxpayers with one lightly mortgaged property. Have an accountant model both routes before you buy, not after.

Mistakes people make

• Deducting mortgage interest as an expense. It's a 20% credit now, not a deduction.
• Claiming improvements as repairs. Keep them for the capital gains calculation instead.
• Missing the 5 October deadline to tell HMRC after your first year of rental profit.
• Sending Form 17 late. Day 61 is too late, and HMRC can't extend it.
• Claiming the £1,000 allowance and the interest credit in the same year.
• Ignoring the £100,000 taper when rent pushes you over it.
• Confusing MTD with the 2027 rise. Same month, different changes: MTD alters reporting, the 22/42/47 rates alter the bill.

Sources: gov.uk: Work out your rental income when you let property · gov.uk: Tax-free allowances on property and trading income · gov.uk: Tax relief for residential landlords, how it's worked out · gov.uk: Changes to tax rates for property, savings and dividend income · House of Commons Library: Budget 2025 income tax rates on property, savings and dividends (CBP-10450) · gov.uk: Income Tax rates and Personal Allowances · gov.uk: Maintaining Income Tax thresholds until 5 April 2031 · gov.uk: Income Tax in Scotland · gov.uk: Form 17, declare beneficial interests in joint property and income · HMRC manual TSEM9860: when a Form 17 declaration takes effect · HMRC manual TSEM9862: Form 17 strict time limit · gov.uk: Check if you need to use Making Tax Digital for Income Tax · gov.uk: Abolition of the furnished holiday lettings tax regime · gov.uk: Corporation Tax rates · gov.uk: SDLT higher rates for additional residential property · HMRC Capital Gains Manual CG14530: market value rule

Education, not tax advice. For advice on your position, speak to an accountant or tax adviser.