Rental income from UK property is taxable as part of your overall income. For 2026/27 you can choose between deducting actual allowable expenses or using the £1,000 property allowance (if your gross rental income is over £1,000). Mortgage interest is no longer fully deductible against rental income for individual landlords; instead, you receive a 20% basic-rate tax credit on finance costs. The Section 24 restriction has been in full force since April 2020 and pushes many higher-rate landlords into a higher effective tax band. This calculator works out your taxable rental profit, applies the Section 24 credit, and shows your final tax bill including Class 4 NI for furnished holiday lets where applicable.
Allowable expenses for landlords
Allowable expenses must be incurred wholly and exclusively for the purpose of letting the property. The main categories:
- Letting and management fees: agent fees, advertising, tenant find fees.
- Repairs and maintenance: not improvements (which are capital, see below). Replacing a broken boiler is a repair; upgrading from a basic boiler to a top-spec combi system that costs more than a like-for-like replacement may be partly capital.
- Insurance: buildings, contents, landlord, rent guarantee.
- Utilities paid by the landlord during voids or bills-included tenancies.
- Council tax paid by the landlord during voids.
- Ground rent and service charges for leasehold properties.
- Accountancy fees for the rental business.
- Bank charges on the rental business account.
- Mileage to inspect the property at HMRC mileage rates (45p/25p).
- Replacement of domestic items relief: replacing furniture, appliances and white goods on a like-for-like basis in furnished lets.
Improvements (extensions, kitchens above like-for-like, conservatories) are capital and don’t reduce rental income. They reduce CGT when the property is sold.
The £1,000 property allowance
If your gross rental income is £1,000 or less, you don’t have to declare it or pay tax. If it’s more, you can choose for each tax year between:
- Deducting actual expenses in the normal way.
- Claiming the £1,000 property allowance as a flat deduction instead.
Most landlords with mortgaged properties find actual expenses exceed £1,000, so the allowance doesn’t help. It’s most useful for unmortgaged or low-cost lets where actual expenses are minimal , a parking space, a garage, a holiday let owned outright.
Section 24: the mortgage interest restriction
Before 2017, landlords could deduct 100% of mortgage interest from rental income to calculate taxable profit. Since 6 April 2020 (after a four-year tapered transition), no mortgage interest is deductible from rental income for individual landlords. Instead, mortgage interest qualifies for a 20% basic-rate tax credit applied after the income tax is calculated.
For a basic-rate taxpayer this is broadly equivalent to the old system , they were getting 20% relief either way. For a higher-rate or additional-rate taxpayer the change is material. Consider a landlord with £15,000 rental income, £4,000 of non-mortgage expenses and £6,000 of mortgage interest:
Pre-2017 (old rules): profit = £15,000 − £4,000 − £6,000 = £5,000. Tax at 40% = £2,000.
Post-2020 (Section 24): taxable profit = £15,000 − £4,000 = £11,000. Tax at 40% = £4,400. Less 20% credit on £6,000 mortgage interest = £1,200. Net tax = £3,200.
The same landlord pays £1,200 more tax under Section 24 , even though their actual cash flow hasn’t changed. The “tax on revenue” effect is the headline complaint about Section 24.
For a higher-rate landlord with significant gearing, Section 24 can push the effective tax rate above 100% , they pay more tax than they make in cash profit. Tax-led incorporation (transferring the property portfolio into a limited company) is one response, though it triggers SDLT and CGT on transfer and isn’t always net beneficial.
Joint landlords
Married couples and civil partners owning property jointly default to a 50/50 split for income tax. They can elect for a different beneficial ownership split using Form 17 if the legal beneficial ownership reflects an actual unequal share. This is often used when one spouse is a basic-rate taxpayer and the other is higher-rate; a 99/1 split in favour of the basic-rate spouse reduces the family tax bill.
Unmarried co-owners can split rental income in any proportion that reflects their actual ownership share , no Form 17 required.
Furnished holiday lets after the 2025 reform
Until April 2025, Furnished Holiday Lets had a more favourable tax regime than ordinary rental property. From 6 April 2025 the FHL regime was abolished. FHLs are now taxed like ordinary rental properties , Section 24 applies to mortgage interest, expenses are calculated the same way, and CGT reliefs that were previously available (Business Asset Disposal Relief, rollover relief) no longer apply.
Existing FHL owners who held property as an FHL prior to April 2025 may still be in transition , the calculator handles both regimes for legacy comparison purposes.
Making Tax Digital from April 2026
Landlords with qualifying income above £50,000 must comply with Making Tax Digital for Income Tax (MTD ITSA) from 6 April 2026. This means digital record-keeping and quarterly updates to HMRC, alongside the annual Self Assessment return. The £30,000 threshold follows in April 2027 and below £30,000 phases in by 2030.
Most landlord-friendly accounting software (Hammock, Property Hawk, Xero with property add-ons) is now MTD-compatible. Spreadsheets are still allowed if used with bridging software that can submit the quarterly reports.
Key takeaways
- Rental income is taxed as part of your total income at marginal rates (20%, 40%, 45%, or Scottish rates).
- Allowable expenses include letting fees, repairs, insurance, accountancy and replacement of domestic items , but not improvements or mortgage interest.
- Section 24 means mortgage interest is no longer fully deductible; you get a 20% basic-rate tax credit instead.
- Higher-rate landlords with mortgages typically pay materially more under Section 24 than under the pre-2017 rules.
- Furnished Holiday Lets lost their preferential regime in April 2025 and are now taxed as ordinary rental property.
Frequently asked questions
Can I claim mortgage interest as an expense? No. Since April 2020, mortgage interest is not deductible from rental income for individual landlords. It generates a 20% basic-rate tax credit instead, applied after the tax calculation. Limited company landlords can still deduct mortgage interest in full because Section 24 only applies to individuals.
What’s the difference between repairs and improvements? Repairs restore the property to its original condition (replacing a broken window with a similar window). Improvements upgrade it (replacing a single-glazed window with a top-spec triple-glazed window). Like-for-like replacement of fixtures and appliances is a repair. Adding new fixtures or substantially upgrading is an improvement. The line is sometimes blurred and worth getting professional advice on for big-ticket items.
Can I deduct travel costs to my property? Yes, at HMRC mileage rates of 45p per mile for the first 10,000 miles and 25p thereafter. Keep a log of journeys with dates and reasons. Public transport, parking and tolls are also allowable.
Do I have to pay NI on rental income? No, generally. Rental income is treated as investment income for tax purposes. Only landlords running short-term-let businesses (e.g. holiday lets pre-April-2025, or those who provide significant additional services like meals and cleaning that take the activity beyond passive letting) might be classed as trading and subject to Class 4 NI.