For UK landlords, letting agents & inventory clerks
Most buy-to-let tax calculators give you a number without showing the reasoning behind it. That matters, because the two things landlords most often get wrong — treating mortgage payments as an expense, and treating an improvement as a repair — are exactly the things a calculator quietly handles for you. This page explains the logic, so you can sanity-check any figure you are given.
It covers England, Wales and Northern Ireland. Scotland sets its own income tax rates and is flagged separately where it matters. Everything here reflects the rules as they stand on 22 August 2026, including the property income tax rates announced at Budget 2025 that take effect from 6 April 2027, and Making Tax Digital for Income Tax, which went live in April 2026 for the first cohort of landlords — those with qualifying income over £50,000.
This is general information, not tax or legal advice. Tax depends on your own circumstances — how you own the property, what other income you have, and what you did with it before you let it. If your situation is anything other than straightforward, speak to a qualified accountant before you file.
Last reviewed 22 August 2026 · checked against GOV.UK and legislation.gov.uk
HMRC treats all your UK property letting — residential and commercial — as a single UK property business, so profits and losses are pooled. Overseas property is a separate business, not pooled with the UK one.
The sum is receipts minus allowable expenses. The cash basis is the default for individual landlords with property receipts of £150,000 or less: you count money when it lands or leaves, not when it was invoiced. Above that, or by election, you use accruals.
The property allowance exempts £1,000 of gross property income a person a year; above that you may deduct £1,000 instead of your actual expenses, never both. It is barred if you claim the finance cost reducer, or against income from a company you or a connected person controls, a partnership you or a connected person is a partner in, or your own or your spouse's or civil partner's employer.
This is where buy-to-let arithmetic goes wrong. Since 6 April 2020, individual landlords of residential property get no deduction for finance costs when working out property profit. Instead, your final tax bill is cut by a separate tax reducer.
For 2026/27 that reducer is 20% of the lowest of three figures:
Finance costs include mortgage and loan interest, interest on loans to buy furnishings, and fees for arranging or repaying them. Capital repayments never qualify, and any unused reducer carries forward.
The restriction catches individual landlords, individual partners in a partnership, and trustees and beneficiaries. It does not apply to companies, which still deduct interest as a normal expense, nor to commercial property or the commercial part of mixed-use property such as a flat over a shop. Former furnished holiday lets are caught too: the FHL regime ended on 6 April 2025.
Plainly put: a highly geared higher-rate landlord can owe tax in a year when the property produced no cash surplus.
An expense is deductible if incurred wholly and exclusively for the letting business and is revenue, not capital: repairs and maintenance, letting agent fees, landlord insurance, ground rent, service charges, accountancy and safety certificates.
Capital expenditure is not deductible against rental income: extensions, conversions, and adding what was not there before. Replacing a worn kitchen with a similar one is a repair; enlarging it or fitting a much higher specification is an improvement.
Furnishings are capital, so replacement of domestic items relief covers beds, sofas, carpets, curtains and white goods. Fixtures — baths, toilets, boilers — are excluded, and replacing those like-for-like is normally a repair. The old item must genuinely be replaced and no longer available to the tenant, so first-time furnishing gets nothing. If the new item is better, the deduction is capped at the cost of a like-for-like or nearest modern equivalent, and anything you get for the old one reduces the claim.
Either way, keep evidence: HMRC enquiries and deposit disputes turn on the property's condition before and after. Dated check-in and check-out photo reports — like those The Property AI produces — are cheap insurance. It is inspection software, not accounting software.
Rental profit is added to your other income and taxed at your marginal rate. For 2026/27 in England, Wales and Northern Ireland the personal allowance is £12,570, the basic rate of 20% applies to the next £37,700 of income (taking you to £50,270), 40% applies up to £125,140, and 45% above that. The allowance drops by £1 for every £2 of adjusted net income over £100,000, so it is gone at £125,140.
Scotland has six bands for 2026/27, from a 19% starter rate to a 48% top rate, so a Scottish landlord's marginal rate will differ.
From 6 April 2027, property income gets its own rates in England, Wales and Northern Ireland, two percentage points above the main rates: 22%, 42% and 47%. Section 24 relief will then be given at the property basic rate of 22%, not 20%. And allowances must be set against non-property income first, so the personal allowance shelters income taxed at 20% rather than 22%. The new rates do not apply to Scottish taxpayers; the government says it will engage with the Scottish and Welsh governments on rate-setting powers.
There is normally no National Insurance on rental profits, because rental income is investment income, not earnings. The exception is where your activity goes beyond ordinary letting and amounts to a trade — running a hotel or guest house, say — when Class 2 and Class 4 NICs can apply.
MTD for Income Tax started on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, assessed from the 2024/25 Self Assessment return. The threshold drops to over £30,000 from April 2027 (based on the 2025/26 return) and over £20,000 from April 2028 (based on the 2026/27 return).
Qualifying income is gross — turnover and rental income before expenses — and self-employment and property income are added together. A landlord with £28,000 of rent and £25,000 of self-employed turnover is over the £50,000 line even if both are barely profitable.
If you are in scope you must keep digital records, use compatible software and file quarterly updates. The quarters run 6 April to 5 July, 6 July to 5 October, 6 October to 5 January and 6 January to 5 April, with deadlines of 7 August, 7 November, 7 February and 7 May. The first update was due on 7 August 2026.
Quarterly updates do not replace your tax return: you still make a final declaration and pay by 31 January. There are no penalties for missing a quarterly update in 2026/27, but late payment penalties apply, and MTD taxpayers move onto HMRC's reformed regime — broadly 3% of the unpaid tax at 15 days, another 3% at 30 days, then 10% a year from day 31. In your first year you get 30 days' grace. Exemptions exist, including for digital exclusion.
Selling a rental property is a separate calculation from your annual rental profit. The gain is broadly the proceeds, less what you paid, less buying and selling costs such as legal fees and stamp duty, less the capital improvements you made. This is where capital spending finally pays off: not deductible against rent, but it raises your base cost and cuts the gain.
For 2026/27 the annual exempt amount is £3,000. Gains above that on residential property are taxed at 18% to the extent they fall within your remaining basic rate band, and 24% above it. Your income is stacked first, so one gain can be taxed partly at each rate. The April 2027 property measure does not change these rates; it affects income tax only.
Where Capital Gains Tax is actually due, a UK residential disposal must be reported and the tax paid within 60 days of completion, through HMRC's Capital Gains Tax on UK property account, separately from your tax return. If the gain is fully covered by Private Residence Relief, losses or the annual exempt amount, no 60-day return is needed — but non-residents must report every disposal of UK property or land even where no tax is due.
If the property was ever your main home, Private Residence Relief may cut the gain substantially. That calculation is fiddly and worth paying someone to get right.
If you are new to letting, tell HMRC by 5 October following the end of the tax year in which you had rental income. Paper returns are due by 31 October and online returns by 31 January. Payments on account fall due on 31 January and 31 July, each normally half the previous year's bill, unless that bill was under £1,000 or over 80% of your tax was collected at source. You generally need a return where property income exceeds £2,500 after allowable expenses or £10,000 before them.
A calculator is fine for a single, wholly owned, straightforwardly let property. Get professional advice when any of these apply:
Nothing here is tax or legal advice, and none of it substitutes for your actual figures. Where a decision is expensive to reverse — incorporating, refinancing, selling — an hour of advice is usually the cheapest part of it.
No. Capital repayments were never deductible, and since April 2020 mortgage interest is not deductible either for individual landlords of residential property. Instead you get a tax reducer worth 20% of the lowest of your finance costs, your property profits, or your adjusted total income. From 6 April 2027 that reducer is given at the property basic rate of 22%. The restriction also catches individual partners, trustees and beneficiaries. Companies still deduct interest as an expense, and commercial property is outside the restriction.
It depends on what changed. Replacing a worn kitchen with one of a similar standard is normally a repair and deductible against rental income. Enlarging the kitchen, adding units that were not there before, or fitting a substantially higher specification is an improvement, and capital. Capital spending is not lost — it usually increases your base cost and reduces Capital Gains Tax when you sell. Keep before-and-after photos and itemised invoices either way.
You do if your qualifying income from self-employment and property combined is over the threshold for that phase: over £50,000 from April 2026, over £30,000 from April 2027, and over £20,000 from April 2028. Qualifying income is gross, before expenses, and HMRC checks it against your Self Assessment return for the relevant earlier year. Those in scope keep digital records, use compatible software and file quarterly updates on 7 August, 7 November, 7 February and 7 May, plus a final declaration by 31 January. Exemptions exist, including for digital exclusion.
Normally no. Rental income is treated as investment income rather than earnings, so no NICs are charged on ordinary letting profits. The exception is where your activity goes beyond what a landlord normally does and amounts to a trade — a hotel or guest house, or serviced accommodation with substantial services — when Class 2 and Class 4 NICs can apply. Proposals to charge National Insurance on rental income circulated before Budget 2025 but were not implemented; higher property income tax rates from April 2027 came instead.
No. The Act commenced on 1 May 2026 and reshaped tenancies — section 21 no-fault evictions are gone, assured shorthold tenancies converted to assured periodic tenancies, and possession now requires a valid ground. None of that alters income tax or Capital Gains Tax. What it does change in practice is evidence: with fixed terms gone and disputes more likely to be argued on the record, dated condition reports and inventories matter more than they did.
It is a genuine question rather than an obvious answer, and it is the clearest case for paid advice. Companies still deduct mortgage interest in full, which can be decisive for geared portfolios, but transferring existing property to a company is a disposal for Capital Gains Tax and can trigger Stamp Duty Land Tax, and extracting profit later is taxed again. The April 2027 property income rates change the comparison. Model your own numbers with an accountant before moving anything.
Every figure and date on this page was checked against these primary sources on 22 August 2026. Law and rates change — verify before you act.
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