One flat or half a dozen houses, the two problems are the same: you are taxed on rent rather than on profit, and from 6 April 2026 the reporting cycle changed. Both are arithmetic, and both are manageable once the numbers are actually in front of you.
Individual landlords of residential property get no deduction for finance costs. Not a restricted deduction — none. In its place the income tax calculation applies a basic rate tax reducer at Step 6, and that reducer is worth 20% of the lowest of three amounts:
The reduction cannot be used to create a tax refund, and finance costs that go unrelieved because one of those three limbs bites are carried forward to a later year. The rules were phased in from 6 April 2017 and have been fully in force since 6 April 2020.
The restriction applies to individuals, to trustees of accumulating or discretionary trusts, and to personal representatives. Partnerships are dealt with by ITA 2007 ss.399A and 399B.
Two exclusions matter. Companies carrying on a property business are not affected, and loans wholly for commercial property are not affected either. The restriction bites on residential letting by individuals.
Furnished holiday lettings used to sit outside it. They do not any more: the FHL regime was abolished for income tax and capital gains tax from 6 April 2025, and for corporation tax from 1 April 2025, and applying the finance cost restriction to that income was one of the four changes abolition made.
Take a landlord with a £45,000 salary and one let house: rent of £24,000, other allowable expenses of £3,000 and mortgage interest of £9,000. These figures are illustrative, on 2026/27 rates, for England, Wales and Northern Ireland — Scotland has six income tax bands of its own.
| Step | Figure |
|---|---|
| Taxable property profit (interest not deducted) | £24,000 − £3,000 = £21,000 |
| Total income | £45,000 + £21,000 = £66,000 |
| Taxable income after the £12,570 personal allowance | £53,430 |
| Tax at 20% on the £37,700 basic rate band | £7,540 |
| Tax at 40% on the remaining £15,730 | £6,292 |
| Tax before the reducer | £13,832 |
| Reducer: 20% of the lowest of £9,000, £21,000 and £53,430 | £1,800 |
| Income tax payable | £12,032 |
Under the pre-2017 treatment the same landlord would have deducted the £9,000, reported a £12,000 property profit and paid £10,232. The difference is £1,800 — exactly 20% of the interest, which is the slice of relief a higher rate taxpayer no longer gets. That gap is the whole of Section 24, and it grows with every pound of borrowing. The Section 24 calculator runs it on your own figures, and the Section 24 guide works through the mechanism line by line.
National Insurance does not appear in the table because rental profits do not bear it. That is precisely the stated reason property income gets its own higher rates from 6 April 2027.
The consequence people miss
The reducer is only half the damage. The other half is that the rent — all of it, before the mortgage — lands in your total income, and total income is the figure the rest of the tax system measures you against. Three thresholds move as a result, and none of them care that the cash never reached your account.
Above £125,140 the additional rate applies. The rates on general income for 2026/27 are 20%, 40% and 45%; from 6 April 2027 property income is charged instead at 22%, 42% and 47% in England, Wales and Northern Ireland, with the Section 24 reducer given at 22% rather than 20%.
If you are anywhere near one of those three lines, who owns the property matters as much as what it earns. Property held jointly by spouses or civil partners is taxed 50:50 by default under s.836 ITA 2007, and only a Form 17 declaration under s.837 changes that — see first-time landlords for how that declaration works and the 60-day deadline that cannot be extended.
Making Tax Digital
Making Tax Digital for Income Tax is live. Landlords with qualifying income over £50,000 were mandated from 6 April 2026, tested on the 2024/25 return. Over £30,000 follows on 6 April 2027, tested on 2025/26, and over £20,000 on 6 April 2028, tested on 2026/27. The underlying instrument is the Income Tax (Digital Obligations) Regulations 2026, SI 2026/336.
The definition is the part that catches people. Qualifying income is your total income from self-employment and property before expenses — turnover, not profit. Property and self-employment are added together, so £25,000 of rent alongside £27,000 of self-employment turnover is £52,000 and inside the regime. On a jointly owned property, your share of the property income counts towards your figure. Employment income, dividends including from your own company, an individual's share of partnership profit, the State Pension and private pensions are all outside it.
What that produces in practice is four quarterly updates and a return:
| Standard quarterly period | Deadline |
|---|---|
| 6 April – 5 July | 7 August |
| 6 April – 5 October | 7 November |
| 6 April – 5 January | 7 February |
| 6 April – 5 April | 7 May |
Calendar quarters ending 30 June, 30 September, 31 December and 31 March may be elected instead, and the same four deadlines apply. Each update carries totals for each income and expense category and nothing more — HMRC does not receive individual digital records such as a receipt or an invoice, and no accounting or tax adjustments are needed before you send one. They are summaries, not tax returns. No tax is paid quarterly: the payment dates are unchanged.
The self assessment return survives. It is filed through MTD-compatible software rather than HMRC's online service, and it is still due by 31 January following the end of the tax year. Employment, pension and state benefit income is pre-populated by HMRC; dividends, savings interest and gains still have to be added.
Penalties for late submission are points-based — one point per missed update or return, a threshold of four points, then £200 and £200 for each further miss. There are no penalties for missing a quarterly update deadline in the 2026 to 2027 tax year, but each update still has to be sent before the tax return. Late payment is separate: for 2026/27 nothing to day 15, then 3% of the tax outstanding at day 15 if you pay between 16 and 30 days late, and if you are 31 days or more late, 3% at day 15 plus 3% at day 30 plus 10% a year on the balance. Those 3% figures become 4% for 2027/28. In your first year under the new penalties you have 30 days from the due date to pay, or to set up a payment plan with HMRC, before any penalty applies. Payments on account are not covered, and earlier tax years stay under the current penalties.
The MTD checker tells you whether you are in and from which April, the MTD service page sets out what complying actually involves, and property bookkeeping is where the digital records come from.
What you can claim
The running costs of the letting come off the rent in the ordinary way: letting agent fees, insurance, ground rent and service charges, repairs and maintenance, safety certificates, accountancy, and any utilities or council tax you bear rather than the tenant. Mortgage interest is not among them, for the reason set out above. Anything that improves rather than restores the property is capital, so it earns nothing now and instead forms part of the base cost when you sell — see capital gains tax on property.
Furniture and appliances have their own relief. Replacement of domestic items relief (ITTOIA 2005 s.311A, from 6 April 2016; CTA 2009 s.250A from 1 April 2016) gives relief for the replacement of moveable furniture, furnishings, household appliances and kitchenware. Three boundaries define it:
The relief is also unavailable on rent-a-room properties, and following abolition of the FHL regime it is now the route for furnished holiday lets too, in place of capital allowances on new expenditure.
Finally the property income allowance: £1,000, from 6 April 2017. Below £1,000 of property income there is full relief and nothing to report. Above it you may deduct up to £1,000 instead of your actual expenses. It cannot be used if you claim the Section 24 finance cost reducer, and it cannot be set against rent-a-room income — which rules it out for most mortgaged buy-to-lets and leaves it useful mainly on a small unencumbered letting. The allowable expenses guide works through the full list.
One firm covering the records, the quarterly cycle, the return and the eventual sale — so nothing falls between a spreadsheet, a letting agent statement and a January deadline.
Property pages prepared properly: allowable expenses, the finance cost reducer, jointly held property and the reliefs that are easy to miss.
Landlord tax returnsDigital records, four quarterly updates and the return, filed through compatible software rather than rebuilt every January.
MTD for landlordsRent and expenses recorded per property, so a quarterly update is ready before the deadline rather than after it.
Property bookkeepingStamp duty across all three UK regimes on the way in, and capital gains tax with its 60-day reporting window on the way out.
Capital gains taxThe honest arithmetic on incorporating, including the corporation tax, the cost of extraction and the price of getting there.
IncorporationQuarterly updates, 31 January, payments on account and the 60-day CGT window, on one calendar.
The landlord tax calendarBecause since 6 April 2020 you get no deduction for mortgage interest against residential rental income. Section 24 — ITTOIA 2005 sections 272A and 272B — replaced the deduction with a basic rate tax reducer worth 20% of the lowest of three figures: your unrelieved finance costs plus anything brought forward, your property business profits for the year, and your adjusted total income above the personal allowance. The rent is taxed gross of the interest and only 20% comes back. On £10,000 of interest a 40% taxpayer bears £2,000 more tax than under the old deduction. The reducer cannot create a tax refund, and anything unrelieved is carried forward.
It is based on gross rent, not profit, which is the point most landlords get wrong. Qualifying income is your total turnover from property and self-employment before any expenses, and the two are added together. A landlord with £45,000 of rent and £10,000 of mortgage interest is tested on £45,000, not £35,000. Mandation started on 6 April 2026 for qualifying income over £50,000, tested on the 2024/25 return. Over £30,000 follows on 6 April 2027, tested on 2025/26, and over £20,000 on 6 April 2028, tested on 2026/27. On jointly owned property, your share counts towards your figure.
No. The property income allowance has been £1,000 since 6 April 2017, and it works as an alternative to claiming your actual expenses rather than as an addition to them. Below £1,000 of property income there is full relief and nothing to report at all. Above it, you may deduct up to £1,000 instead of your real costs. But you cannot use the allowance if you are claiming the Section 24 finance cost tax reducer, and you cannot set it against rent-a-room income. For a mortgaged buy-to-let the reducer and the real expenses are worth far more, so the allowance suits small unmortgaged lettings.
Replacement of domestic items relief, in ITTOIA 2005 section 311A, has applied since 6 April 2016. It covers the replacement of moveable furniture, furnishings, household appliances and kitchenware — a sofa, a bed, a fridge, a washing machine, crockery. Two limits catch people out. It is replacement only, so the initial purchase when you first furnish a property gets nothing at all. And it excludes fixtures, which means baths, toilets, fitted furniture and boilers sit outside it entirely. Where the new item is an improvement, relief is capped at what an equivalent replacement would have cost.
Because Section 24 puts the gross rent into your total income and takes the interest out of the deduction. That inflated total income is what the thresholds are measured against, not your cash position. Three lines matter. £50,270 is where the higher rate starts, so property profits stacked on a salary can be taxed at 40% even where the mortgage swallows the cash. Above £100,000 the personal allowance starts to be withdrawn, which makes that band unusually expensive. And the High Income Child Benefit Charge threshold is measured on the same inflated figure, so a landlord with children can lose child benefit on rent never actually banked.
Two things. Property income gets its own income tax rates in England, Wales and Northern Ireland — 22%, 42% and 47%, two percentage points above the general rates that apply to earnings. And the Section 24 finance cost reducer moves from 20% to the new property basic rate of 22%, which is a small offset against a much larger rise. The mechanism is unchanged; only the percentages move. Scotland sets its own income tax with six bands, and a Scottish taxpayer's property income stays on the Scottish rates. Companies are not mentioned in the measure at all, which is why it moves the incorporation arithmetic from that date.
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