Rental Income Tax — What UK Landlords Need to Know in 2026

Is rental income always taxable?

Yes — rental income from UK property is taxable as property income. You declare it on your Self Assessment tax return, and it is taxed at your marginal income tax rate alongside your other income.

There are very limited exemptions. The Rent a Room scheme exempts the first £7,500 per year if you rent a furnished room in your own home. This is the main exception for individual landlords.

Allowable expenses for UK landlords

You can deduct allowable expenses from your rental income before tax is applied. For residential landlords, these include:

• Letting agent fees
• Accountancy and bookkeeping fees for the rental business
• Advertising costs for finding tenants
• Buildings and contents insurance
• Maintenance and repairs (not improvements — see below)
• Council tax and utilities if you pay these (not the tenant)
• Landlord licensing fees where applicable
• Ground rent and service charges for leasehold properties
• Legal fees for preparing new tenancy agreements

Repairs vs improvements: The distinction is critical. Replacing a broken boiler with an equivalent boiler is a repair — deductible. Replacing a broken boiler with a higher-specification model is partly an improvement — only the repair element is deductible.

The mortgage interest restriction

This is the most significant change to landlord taxation in recent years. From 2020/21, you can no longer deduct mortgage interest as an expense. Instead, you receive a 20% tax credit on finance costs (mortgage interest, arrangement fees).

This disproportionately affects higher-rate taxpayers:

Example — higher-rate taxpayer with £10,000 mortgage interest:

• Old rules: Deduct £10,000, saving £4,000 tax (40%)
• New rules: 20% credit = £2,000 tax saving

The effective loss is £2,000 per year per £10,000 of mortgage interest for a higher-rate taxpayer. This has significantly reduced returns for many leveraged landlords.

Wear and tear allowance (replaced by replacement relief)

The flat-rate wear and tear allowance was abolished in 2016. It has been replaced by replacement of domestic items relief — you can deduct the cost of replacing furniture, white goods, and equipment (like-for-like replacement), but not the original purchase of items when you first let the property.

When to declare rental income

Rental income is declared on your Self Assessment tax return. All rental income must be declared, including:

• Income from long-term residential lets
• Short-term holiday lets (Airbnb, etc.) — with different expense rules (see below)
• Rent from lodgers above the £7,500 Rent a Room threshold
• Income from renting storage or parking spaces

Note on Furnished Holiday Lettings (FHL): FHL rules are changing. The government announced abolition of the FHL regime from 6 April 2025. Holiday lets are now treated as ordinary property letting, meaning you lose access to capital allowances, business asset disposal relief, and pension contribution relief that FHL previously allowed.

Record-keeping for landlords

Keep records of all rental income received, all allowable expense receipts, mortgage statements (for the interest element and finance cost credit), and any works carried out with receipts.

Records must be kept for 5 years after the Self Assessment filing deadline.

MTD for Income Tax and landlords

MTD for Income Tax applies to landlords with income above the threshold. From April 2026, landlords earning above £50,000 in gross property income must comply. From April 2027, the threshold drops to £30,000.

This means keeping digital records and submitting quarterly updates to HMRC through MTD-compatible software. Cloud accounting platforms are beginning to support property income specifically for this requirement.