Rental Income Tax Calculator UK 2026/27 — Landlord Tax, Section 24 & Allowable Expenses
Since April 2020, private landlords can no longer deduct mortgage interest as a business expense. Instead, they receive a 20% tax credit (Section 24 restriction). For higher-rate taxpayers this significantly increases the tax bill — sometimes pushing landlords into losses on paper while paying tax on their rental income. This calculator works out your true rental tax liability including the Section 24 impact.
Section 24 (full restriction since April 2020): mortgage interest is added back to profits; only a 20% tax credit is given. This costs higher-rate (40%) landlords significantly more than pre-2020. Property Income Allowance: £1,000/year property allowance available instead of expenses (if expenses are lower). Wear and tear allowance was abolished in 2016.
How Section 24 Changed Landlord Taxation
Before April 2017, landlords could deduct mortgage interest as a business expense, reducing their taxable profit pound-for-pound. Under the old rules, a landlord with £18,000 rental income and £8,000 interest would be taxed on £10,000 profit. Now, they are taxed on £18,000 (minus other expenses), then given a 20% credit of £1,600. For a 40% taxpayer this means paying £7,200 in tax minus £1,600 credit = £5,600 — compared to around £4,000 under the old rules. The increase is very significant for highly geared landlords.
Allowable Expenses — Full List
| Allowable | Not allowable |
|---|---|
| Letting agent / management fees | Mortgage interest (goes through S24 credit instead) |
| Repairs and maintenance | Capital improvements (new extension, new kitchen) |
| Insurance (buildings, contents, rent guarantee) | Your own time / unpaid labour |
| Service charges (leasehold) | Initial legal fees to buy the property |
| Ground rent | Stamp duty (capital cost) |
| Council tax & utilities (if paid by landlord) | Personal use proportion of any shared costs |
| Accountant / professional fees for rental | Costs relating to non-residential use |
| Advertising for tenants | Fines or legal costs for unlawful acts |
Incorporation — Should You Move to a Limited Company?
Since Section 24, many landlords have explored moving their rental portfolio into a limited company, where the old interest deduction rules still apply (companies deduct finance costs as a business expense). However, incorporation involves: Capital Gains Tax on the deemed disposal; Stamp Duty Land Tax on the transfer; complexity of ongoing company administration; higher mortgage rates for limited company buy-to-let; and eventual dividend tax when extracting profits. The decision is highly individual and requires specialist tax advice — there is no single right answer.
Reporting Rental Income to HMRC
If your gross rental income (before expenses) is £1,000 or less in a tax year, you don't need to report it to HMRC at all under the property allowance rules. Above £1,000 but below £2,500 in profit, you may still need to register for Self Assessment depending on your other income and circumstances — it's worth checking directly with HMRC or a tax adviser rather than assuming. Once you're required to report, rental income and expenses are declared on the SA105 property pages of your Self Assessment return, filed by the same 31 January deadline as the rest of your return. You must also register for Self Assessment by 5 October following the end of the tax year in which you first had rental income to report, even if you don't owe any tax once expenses are deducted — missing this registration deadline can trigger a penalty separate from any late filing or late payment charges.
The Property Allowance vs Claiming Actual Expenses
Landlords with relatively low rental income and few expenses can choose to claim the £1,000 property allowance instead of deducting their actual costs — this simply reduces your taxable rental profit by £1,000 with no need to keep receipts or itemise anything. This only makes sense if your genuine allowable expenses come to less than £1,000 for the year; if your actual expenses (mortgage interest relief credit aside, plus repairs, insurance, letting agent fees, and so on) exceed £1,000, you're generally better off itemising them individually rather than taking the flat allowance. You can switch between the two methods from year to year depending on which is more favourable, but you cannot claim both the property allowance and itemised expenses in the same tax year for the same source of income.
Frequently Asked Questions
Section 24 applies to individuals and partnerships letting residential property. It does not apply to: limited companies (which can still fully deduct finance costs); commercial property landlords; furnished holiday lets (though FHL rules changed significantly from April 2025 — FHLs are now treated as standard residential lettings for finance cost purposes). Basic rate taxpayers are less affected than higher-rate taxpayers because the 20% credit matches their marginal rate on the interest.
Yes — all your UK residential rental properties are treated as a single “property business” for tax purposes. Losses from one property can be offset against profits from another in the same year. Unused losses are carried forward to future years. However, rental losses cannot be offset against other income (such as employment income) unless you are a property professional with specific conditions met.
Renting a room in your main home falls under the separate Rent a Room scheme rather than the standard rental income rules, with its own tax-free threshold (currently £7,500 per year, or £3,750 each if you share the income with a partner). If your gross receipts from lodgers stay within this threshold, the income is entirely tax-free and doesn't need to be reported. Above the threshold, you can choose to be taxed on the excess over £7,500, or opt out of the scheme and be taxed on your rental profit calculated the normal way (income minus allowable expenses), whichever works out cheaper for your circumstances.
The 20% tax credit under Section 24 applies to the total finance costs across your entire property portfolio, not per individual property or mortgage. All your interest and finance costs (mortgage interest, arrangement fees spread over the mortgage term, and similar costs) are added together and the 20% credit is calculated on that combined total, then applied against your overall Income Tax liability — this treats your properties as one combined "property business" for finance cost relief purposes, consistent with how losses are also pooled across properties.