Landlord Income Tax UK 2026, Rental Income & Section 24 Guide

Overview

How rental income is taxed

• Rental income is taxed as property income under Schedule A, it is added to your other income (employment, pension, dividends) and taxed at your marginal rate
• Tax rates 2025/26: basic rate 20% (�12,571��50,270 taxable income), higher rate 40% (�50,271��125,140), additional rate 45% (above �125,140)
• Personal allowance (�12,570): rental income can be sheltered by any unused personal allowance, but note that high rental income combined with employment income quickly exhausts the allowance
• The taxable amount is rental income minus allowable expenses, mortgage interest is no longer a fully allowable expense (see Section 24 below)
• If your only UK income is rental income above the personal allowance, you must register for self-assessment and file a UK tax return annually

Section 24, the mortgage interest restriction

• Since April 2020, individual landlords can no longer deduct mortgage interest, loan interest, or arrangement fees from rental income as a business expense
• Instead, they receive a tax credit equal to 20% of finance costs, the 'basic rate tax credit'
• Impact on higher rate taxpayers: a higher rate taxpayer with �10,000 of mortgage interest previously saved �4,000 in tax (40% of �10,000). Now they save only �2,000 (20% credit). The additional �2,000 tax is a real cost increase
• Impact on basic rate taxpayers: where rental income plus other income remains within the basic rate band, Section 24 has no net effect, the deduction and the credit are mathematically equivalent
• The credit cannot reduce your income tax bill below zero, unused credits are not refunded
• Section 24 applies to individuals, partnerships, and LLPs, it does not apply to limited companies. This is the primary driver of the shift to SPV ownership among higher-rate taxpayer landlords

Allowable rental expenses

• Fully deductible (revenue expenses): Letting agent fees, property management fees, advertising costs, accountancy fees for rental accounts, landlord insurance, ground rent and service charges (leasehold), council tax (during void periods), utilities paid by the landlord, repairs and maintenance (like-for-like replacement, not improvement)
• Restricted to 20% tax credit: Mortgage interest, loan interest, arrangement fees, finance costs
• Not deductible from rental income: Capital expenditure (additions or improvements to the property), personal costs, depreciation, costs of the original purchase
• Wear and tear allowance: Abolished in April 2016. Replaced by the 'replacement of domestic items relief', the cost of replacing furnishings on a like-for-like basis is deductible, but the initial purchase of furnishings for an unfurnished property is not
• Keep receipts for all deductible expenses, HMRC may request evidence in a compliance check

Self-assessment obligations

• Register for self-assessment with HMRC if you receive rental income above �2,500 per year (net of allowable expenses), or if your gross rental income exceeds �10,000
• Below �1,000 gross rental income: the Property Income Allowance exempts you entirely, no need to file
• �1,000��2,500 gross profit after expenses: HMRC may collect tax via PAYE coding adjustment if you are also employed, but self-assessment may still be required
• File your tax return by 31 January each year (online filing) for the previous tax year (ending 5 April). First payment on account is also due 31 January; second payment on account is 31 July
• Penalties for late filing: �100 automatic penalty for a single day late, then �10/day for up to 90 days, then further fixed and percentage-based penalties. Always file on time even if you cannot pay the tax

Limited company alternative, is it right for you?

• A limited company (SPV) pays corporation tax on profits (19�25%), not income tax. Mortgage interest remains fully deductible for companies, Section 24 does not apply
• A higher-rate taxpayer with significant mortgage interest costs may save substantial tax by holding properties in an SPV, but the savings must offset the additional mortgage costs (SPV mortgages are sometimes slightly more expensive), accountancy fees, and company administration
• Existing landlords: transferring personally held properties into a company triggers SDLT (on market value) and potentially CGT on the deemed disposal, the cost is often prohibitive for established portfolios
• New purchases: buying future properties in an SPV from the outset is the most tax-efficient approach for higher-rate taxpayers with significant finance costs
• Take advice from a specialist tax adviser who understands both the personal and corporate tax positions before making any structural changes, the interaction with CGT, IHT, and pension planning can significantly affect the optimal structure