SA105 property pages, the 20% mortgage-interest credit, allowable expenses, the property allowance and MTD for landlords, explained in plain English for UK landlords.
The biggest shock for most landlords is not the rate of tax, it is how much of the rent is now in scope. The reform of mortgage-interest relief means a landlord can be making very little real profit, after a large mortgage payment, yet face a tax bill calculated on rent that looks much higher than what actually lands in the bank. Add the SA105 property pages, the property allowance, the joint-ownership rules and the arrival of Making Tax Digital, and rental income is one of the most misunderstood corners of UK tax.
This guide walks through how property income is actually taxed: the finance-cost credit that replaced interest relief, what you can and cannot deduct, how the GBP 1,000 property allowance and joint ownership work, and what changes when you fall inside MTD.
Letting out property is treated as a property business, not a trade, but the profit is still Income Tax. You add your rental profit to your other income and the combined total is taxed for 2025/26 at 20% up to GBP 50,270, 40% to GBP 125,140 and 45% above, with the GBP 12,570 personal allowance tapering away between GBP 100,000 and GBP 125,140 to create an effective 60% band. Crucially, rental profit is not earned income, so there is no National Insurance on it, no Class 4 and no Class 2.
Scottish landlords pay Scottish Income Tax on their property profit through six bands (19%, 20%, 21%, 42%, 45% and a 48% top rate) and carry an S-prefixed tax code. Welsh landlords have a C-coded tax code at rates currently matching the rest of the UK. If a new property pushes you into a higher band, or your PAYE code suddenly changes to collect tax on rent, run it through the tax code checker to make sure HMRC has it right.
Rental income is reported on the SA105 supplementary pages of your Self Assessment return, not the main self-employment pages. One SA105 covers all your UK residential and commercial lettings together as a single property business, so you pool the income and expenses from every property you let in the UK rather than filing one set per property. Overseas property goes on the separate SA106 foreign pages instead.
This is the single most important thing to understand about landlord tax. Before April 2020 you simply deducted mortgage interest as an expense. That is gone. Now finance costs, which means mortgage interest, loan arrangement fees and overdraft interest used in the property business, get a basic-rate tax reducer worth 20% of the cost. You work out tax on the full rental profit (with interest left in), then subtract 20% of your finance costs as a credit.
For a basic-rate landlord the result is roughly the same as the old deduction. For higher and additional-rate landlords it is materially worse, because the full rent now counts towards total income (potentially tipping them into the 40% band, restricting the personal allowance, or triggering the High Income Child Benefit Charge), while the interest only attracts 20% relief. Use the rental income tax calculator to see how the credit reshapes your bill against the old deduction.
| Step | Old rules (pre-2020) | Current rules (2025/26) |
|---|---|---|
| Mortgage interest | Deducted from rent as an expense | Not deductible; left in profit |
| Taxable profit | Lower (interest removed) | Higher (interest still in) |
| Relief on interest | At your marginal rate (20/40/45%) | Flat 20% tax credit only |
| Effect on total income | Reduced your income figure | Full rent counts towards income |
| Who loses out | Nobody | Higher and additional-rate landlords |
If your gross rental income for the year is GBP 1,000 or less, it is tax-free and you do not need to report it. This covers the accidental landlord renting a spare room beyond Rent a Room, the occasional driveway or storage let, or a very small ground rent. Cross GBP 1,000 and you must register for Self Assessment and report the full amount.
Above the threshold you choose each year: deduct the flat GBP 1,000 property allowance instead of expenses, or claim your actual allowable expenses, whichever gives the lower profit. You cannot do both. The allowance suits a landlord with negligible costs; anyone with an agent, insurance and real maintenance is almost always better off claiming actuals. Importantly, the allowance applies per person, so jointly owned property gives each owner their own GBP 1,000.
An expense is allowable when incurred wholly and exclusively for the property business and it is revenue rather than capital in nature. The dividing line between a repair (allowable) and an improvement (capital) is where most landlords slip.
| Expense | What qualifies | Notes |
|---|---|---|
| Letting and management fees | Agent commission, tenant find fees, management charges | Fully deductible running cost |
| Insurance | Buildings, contents and landlord/rent-guarantee insurance | Allowable in full |
| Repairs and maintenance | Like-for-like fixes: redecorating, replacing a broken boiler, mending guttering | Improvements and upgrades are not allowable |
| Replacement of domestic items | Sofas, beds, carpets, curtains, fridges, washing machines in let homes | Replacement only, not the initial purchase, and no upgrade element |
| Ground rent and service charges | Leasehold ground rent, estate service charges | Allowable where you bear the cost |
| Council tax and utilities | Bills you pay during void periods or for inclusive lets | Only the periods you actually pay |
| Professional fees | Accountancy, some legal fees for short leases and tenant disputes | Fees on buying or selling are capital |
| Advertising and admin | Tenant advertising, referencing, phone, stationery, software | Ordinary running costs |
| Safety and compliance | Gas safety certificates, EICR electrical checks, EPCs | Allowable as running costs |
A repair restores something to its original condition and is allowable now; an improvement makes the property better than it was and is capital, saved up to reduce Capital Gains Tax when you eventually sell. Replacing a dated but working kitchen with a high-spec one is largely capital; replacing a rotten kitchen with a modern equivalent of similar standard is a repair. Fitting double glazing where there was single glazing was once disputed but is now generally accepted as a repair given it is the modern equivalent. When in doubt, keep the invoice and the before-and-after detail.
For let residential property you can deduct the cost of replacing movable domestic items such as beds, sofas, carpets, curtains, crockery and white goods. You cannot claim the first time you provide them, only replacements, and you must strip out any improvement: if you replace a basic washing machine with a high-end one, you claim only the cost of an equivalent basic replacement.
Take a landlord with a salary that already uses the personal allowance and a single buy-to-let producing GBP 18,000 of rent, with a GBP 9,000 mortgage interest cost.
Rental income: GBP 18,000
Allowable expenses (interest excluded):
Taxable rental profit: GBP 18,000 minus GBP 4,300 = GBP 13,700
Because the salary already used the personal allowance and pushed this landlord to higher rate, the profit is taxed at 40%: GBP 13,700 at 40% = GBP 5,480.
Finance-cost credit: 20% of the GBP 9,000 interest = GBP 1,800 credit.
Tax on the rental: GBP 5,480 minus GBP 1,800 = GBP 3,680. Under the old rules the interest would have been deducted first, leaving a GBP 4,700 profit taxed at 40% (GBP 1,880), so the reform costs this landlord around GBP 1,800 more. Sanity-check your own figures with the rental income tax calculator, and if you also run a trade or have other lets, the multiple-income calculator stacks them together.
The trap with rental income is taxing a profit you never really made. The mortgage payment leaves your account, but only 20% of the interest comes back as a credit, so plan your cash for a tax bill bigger than your real margin.
How jointly owned property is taxed depends on who owns it. For married couples and civil partners, HMRC splits the income 50/50 by default whatever the actual ownership shares, unless you both genuinely hold unequal beneficial shares and make a Form 17 election to be taxed on those real proportions. Unmarried joint owners, including siblings, friends or unmarried partners, are taxed on their actual ownership percentages. Each owner reports their share on their own SA105 and claims their own GBP 1,000 property allowance against it. Splitting ownership with a lower-earning spouse is a common, legitimate way to use two personal allowances and keep more of the rent in the basic-rate band.
If you let a holiday property, note that the Furnished Holiday Lettings regime was abolished from April 2025. The old perks, full mortgage-interest deduction, capital allowances on furnishings, and CGT reliefs like Business Asset Disposal Relief, no longer apply. Holiday lets are now taxed as ordinary property income alongside the rest of your portfolio, with the same 20% finance-cost credit. Our dedicated holiday let tax guide covers exactly what changed and how to handle the transition.
Making Tax Digital for Income Tax replaces the once-a-year return with quarterly digital submissions and a year-end finalisation. The thresholds are on gross income, the rent before expenses, not profit:
A landlord with three properties grossing GBP 22,000 each is over GBP 50,000 on gross rent even if profit after the mortgage is modest, so check the total rent, not the bank balance. Once in, you keep digital records of property income and expenses and send HMRC a quarterly summary using compatible software, then finalise the year. For jointly owned property the threshold test looks at each owner's share of the gross rent. Our guide to MTD for sole traders explains the quarterly rhythm, which works the same way for property.
Still deducting mortgage interest as an expense. Interest is no longer an expense; it is a separate 20% credit. Putting it in the expenses box overstates your relief and understates your income.
Confusing repairs with improvements. New extensions, upgraded kitchens and bathrooms beyond like-for-like are capital, not allowable now, but kept for CGT on sale.
Forgetting the property allowance is per person. Jointly owned property gives each owner GBP 1,000, not GBP 1,000 between you.
Assuming the salary allowance covers the rent. If a job already uses your personal allowance, every pound of rental profit is taxed from at least the basic rate, often the higher rate once the full rent is added in.
Measuring MTD on profit. The thresholds are on gross rent, so low-margin, high-rent landlords can be caught far earlier than they expect.
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