Quick answer for 2026/27: total the rent and other property receipts, subtract allowable revenue expenses or use the £1,000 property allowance if eligible, then add the taxable profit to other income. Individual residential landlords claim a basic-rate finance-cost reduction instead of deducting mortgage interest. Model the result with the rental income tax calculator.
Gross rental income, cash profit and taxable profit
Gross property income includes rent and related receipts from the tenant. Cash profit is what remains after all real cash costs, including mortgage interest and capital spending. Taxable profit is a statutory figure: it deducts qualifying revenue expenses but excludes private costs, capital improvements and, for an individual residential landlord, finance costs that receive relief later. The three figures can therefore be very different.
Rental profit is added to employment, pension, trading and other taxable income. In 2026/27 it uses the ordinary Income Tax bands. A person with unused Personal Allowance can pay little or no tax, while the same property profit can fall at 40% or 45% for someone whose other income already fills lower bands. Scottish taxpayers should note that UK property income is generally taxed using the UK property income rules and the applicable non-savings, non-dividend framework; use current HMRC guidance for cross-border or mixed cases.
Allowable expenses: what normally qualifies
The general test is that an expense is incurred wholly and exclusively for the property business and is revenue rather than capital. HMRC's rental income guidance lists common categories, but the purpose and evidence are more important than the label on an invoice.
| Cost | Usual treatment | Key condition |
|---|---|---|
| Letting agent and management fees | Allowable revenue expense | Relates to running the letting |
| Landlord insurance | Allowable revenue expense | Property business cover |
| Repairs and maintenance | Usually allowable | Restores rather than improves |
| Utilities and Council Tax paid by landlord | Usually allowable | Landlord bears the cost |
| Accountancy fees | Usually allowable | Relate to the property business |
| Ground rent and service charges | Usually allowable | Revenue charges, not capital works |
| Residential mortgage interest | Finance-cost tax reduction | Individual landlord rules apply |
| Mortgage capital repayment | Not deductible | Repays borrowing rather than a cost |
| Extension or new room | Capital | Creates or improves an asset |
| Private travel or personal use | Not allowable | Not wholly for the business |
Repairs compared with improvements
A repair restores the asset or replaces a worn component with the nearest modern equivalent. Replacing a failed standard boiler with a modern standard boiler can remain a repair even if technology has improved. Adding a conservatory, converting a loft or replacing a basic kitchen with a materially higher-specification redesign can be capital. A single project can contain both elements, so ask suppliers for itemised invoices and document the condition before work began.
Capital spending is not simply lost. It may form part of the acquisition or enhancement cost when a future Capital Gains Tax calculation is made, provided the statutory conditions are met and the improvement still exists at disposal. The Capital Gains Tax calculator is useful for an illustration, but legal and professional costs need case-specific review.
The £1,000 property allowance
The property allowance can exempt up to £1,000 of qualifying gross property income. If receipts exceed £1,000, eligible taxpayers can elect to deduct the £1,000 allowance instead of actual expenses. It is often useful for a low-cost letting, but it is not automatically the best choice.
Worked example 1: allowance or actual expenses
| Method | Gross rent | Deduction | Taxable profit |
|---|---|---|---|
| Actual expenses | £6,000 | £400 | £5,600 |
| Property allowance | £6,000 | £1,000 | £5,000 |
In this simple illustration, the allowance reduces taxable profit by a further £600. If actual expenses were £1,500, actual expenses would instead produce the lower profit. You cannot use both methods for the same income, and the official guidance excludes several connected-party and partnership situations.
A particularly important restriction is that the allowance cannot be combined with the residential property finance-cost tax reduction. A mortgaged landlord should compare the complete tax calculation, not just £1,000 against routine expenses.
Mortgage interest and the Section 24 finance-cost reduction
An individual landlord of residential property does not deduct mortgage interest from rental income as an ordinary expense. Instead, eligible finance costs can produce a tax reduction calculated at the basic rate, currently 20%. The reduction is subject to limits linked to finance costs, property business profits and adjusted total income. Unused finance costs can be carried forward under the rules.
Worked example 2: higher-rate landlord with a mortgage
| Step | Calculation | Amount |
|---|---|---|
| Rent received | Given | £18,000 |
| Allowable non-finance expenses | Given | £4,000 |
| Taxable property profit | £18,000 - £4,000 | £14,000 |
| Income Tax at 40% | £14,000 x 40% | £5,600 |
| Basic-rate finance-cost reduction | £6,000 interest x 20% | £1,200 |
| Illustrative tax after reduction | £5,600 - £1,200 | £4,400 |
| Cash profit before tax | £18,000 - £4,000 - £6,000 | £8,000 |
| Cash left after illustrative tax | £8,000 - £4,400 | £3,600 |
The example assumes the full £1,200 reducer is available, all profit falls in the 40% band and there are no carried-forward finance costs. It demonstrates why taxable profit can be £14,000 even though only £8,000 remains before tax. Use the calculator with other income entered because band position and the reducer limits can change the result.
Companies are outside this individual restriction and can generally treat finance costs under corporation tax rules, but company ownership brings separate extraction tax, administration, financing and transfer costs. Moving an existing property to a company can itself trigger transaction tax and Capital Gains Tax. It is not a simple one-rate comparison.
Joint owners, spouses and civil partners
Joint owners normally report their beneficial share of property income. For spouses and civil partners living together, income from jointly held property is generally taxed 50:50 unless the beneficial interests are unequal and a valid Form 17 declaration with evidence is made. The declaration does not create ownership; it reports the actual ownership position. Partnerships and jointly operated property businesses can follow different rules.
Former furnished holiday lettings
The special furnished holiday lettings tax regime was abolished from 6 April 2025 for individuals and 1 April 2025 for Corporation Tax. Former qualifying holiday lets now sit within the ordinary property business rules. This affects finance costs, capital allowances, pension-relevant earnings treatment and some disposal reliefs. Do not apply an old FHL checklist to a 2026/27 return.
When and how to report rental income
If gross qualifying property income is £1,000 or less, the property allowance may mean no declaration is needed, subject to exceptions and any reason to file a return. GOV.UK says to contact HMRC when gross rent is over £1,000 and up to £2,500. Self Assessment is required when property profit exceeds £2,500 or gross property income exceeds £10,000 before expenses.
- Register for Self Assessment by 5 October after the end of the tax year if registration is required.
- Keep a record of rent, invoices, statements, mileage basis and finance-cost calculations.
- File an online return by 31 January after the tax year and pay tax due by the same date.
- Consider payments on account where the Self Assessment conditions are met.
- Retain records for at least five years after the 31 January submission deadline for the relevant tax year, unless a longer period applies.
For the 2026/27 tax year ending 5 April 2027, the usual online filing and balancing-payment date is 31 January 2028. The tax year dates guide explains how UK tax years and return dates line up.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax begins in phases using qualifying gross income from self-employment and property, combined before expenses. The mandatory start is 6 April 2026 for qualifying income above £50,000, 6 April 2027 above £30,000, and 6 April 2028 above £20,000, subject to eligibility and exemptions. Affected taxpayers use compatible software for digital records and quarterly updates, followed by year-end tax reporting.
The trigger uses gross qualifying income, not rental profit. A landlord with £55,000 rent and £30,000 expenses can therefore be within the first phase even though profit is £25,000. Check HMRC's current MTD service guidance because sign-up, exemption and agent processes continue to be updated.
Future change from 6 April 2027
Finance Act 2026 provides separate property income rates of 22%, 42% and 47% from 6 April 2027. Those rates are two percentage points above the current UK basic, higher and additional rates. They do not apply to the 2026/27 calculator or return. They are relevant to 2027/28 forecasts, and consequential detail should be rechecked when HMRC publishes final operational guidance.
This page deliberately separates current 2026/27 law from the 2027/28 property-rate change. It also excludes detailed rent-a-room, non-resident landlord, VAT, trust, partnership and property-development rules because each has a different primary intent and can change the answer materially.
A practical record-keeping checklist
- Tenancy agreements, rent schedules and deposit records.
- Bank statements that identify each property receipt and payment.
- Itemised invoices separating repairs from improvements.
- Mortgage statements separating interest, fees and capital repayment.
- Evidence of joint beneficial ownership and any Form 17 declaration.
- Mileage or travel records showing business purpose and apportionment.
- Prior-year losses and unused residential finance costs.
- Completion statements and capital improvement evidence for a future disposal.
The current site navigation does not have a separate Property hub, so the relevant rental, buy-to-let, transaction-tax and capital-gains tools are linked directly above. Estimates are useful for planning, but mixed-use property, incorporation, trusts, non-residence or a disputed repair should be reviewed by a qualified tax adviser.