The first let is mostly one question: how much of this rent is actually mine? The answer depends on what you can claim, how the mortgage is treated, whose name is on the deeds, and one date in January that catches almost everybody in year two.
Letting a property puts you into self assessment. The rental income and the expenses go on the property pages of a tax return, and the tax on a tax year is due by 31 January following the end of it. That much most people expect.
What they do not expect is the second year. Once your liability is large enough for HMRC to ask for payments on account, you make two instalments towards the following year — one on 31 January and one on 31 July — on top of the balancing payment for the year just filed. So the January after your first full year of letting can carry two amounts on the same date, and the second is for a year that has not finished. Nothing has gone wrong; it is simply how the system collects tax from people who are not on PAYE. It is also why the reserve should come out of each month's rent rather than out of whatever is in the account in January.
If you have already been letting for a while without declaring it, the Let Property Campaign is the route back. You notify HMRC, and you then have 90 days from the acknowledgement of that notification to calculate and pay. Disclosing before HMRC finds out avoids the higher penalties, and the possibility of criminal prosecution, that follow when it does.
A £38,000 salary and one let flat: rent £13,200, allowable expenses £2,400, mortgage interest £4,800. Illustrative figures 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) | £13,200 − £2,400 = £10,800 |
| Total income | £38,000 + £10,800 = £48,800 |
| Tax on the property profit at 20% | £2,160 |
| Reducer: 20% of the lowest of £4,800, £10,800 and adjusted total income above the allowance | £960 |
| Tax on the letting | £1,200 |
| Cash the flat actually produced | £13,200 − £2,400 − £4,800 = £6,000 |
At the basic rate the reducer gives back exactly what the lost deduction took, so the tax is 20% of real profit and Section 24 costs nothing. The warning sits in the total income line: £48,800 is £1,470 below the £50,270 higher rate threshold. A pay rise, a bonus or a rent increase tips part of that property profit into 40% while the reducer stays at 20% — and that is the point at which the restriction starts costing money. See buy-to-let landlords for the same sum done at the higher rate.
Making Tax Digital
Making Tax Digital for Income Tax is already live for the largest landlords: qualifying income over £50,000 was mandated from 6 April 2026, tested on the 2024/25 return. Two more phases follow — over £30,000 from 6 April 2027, tested on 2025/26, and over £20,000 from 6 April 2028, tested on 2026/27.
The test is qualifying income, which is turnover from property and self-employment before expenses. Gross rent, in other words, added to any self-employment income you have. Not profit. A landlord with £45,000 of rent and a £10,000 mortgage is tested on £45,000. On a jointly owned property, only your share of the property income counts towards your own figure. Employment income, dividends, an individual's share of partnership profit, the State Pension and private pensions are all outside the test.
So one flat, on its own, will usually leave a first-time landlord outside MTD for now. A first-time landlord who also runs a business may already be inside it, because the two are added together. There is an automatic and permanent exemption where qualifying income is £20,000 or less, and another where you did not have a National Insurance number before the start of the tax year.
In year one, keep records as though Making Tax Digital already applied: rent and expenses captured digitally as they happen, per property. When your income reaches a threshold, the quarterly updates can then be sent from records you already keep, rather than rebuilt under a deadline. The MTD checker gives you your date, and the MTD guide explains the cycle.
Claims and reliefs
Allowable expenses are the running costs of the letting: letting agent fees, insurance, ground rent and service charges, repairs and maintenance, safety certificates, accountancy fees, and any utilities or council tax you pay rather than the tenant. Mortgage interest is not among them. Since 6 April 2020 residential finance costs give a basic rate tax reducer worth 20% instead of a deduction, under ITTOIA 2005 ss.272A and 272B.
Furniture and appliances sit under replacement of domestic items relief (ITTOIA 2005 s.311A, from 6 April 2016). It gives relief for replacing moveable furniture, furnishings, household appliances and kitchenware — not for the initial purchase when you first furnish the place, and not for fixtures, which is why baths, toilets, fitted furniture and boilers are outside it. Where the new item is an improvement on the old, relief is the lesser of what you spent and what an essentially like-for-like replacement would have cost.
Work that improves rather than restores is capital. It gets nothing now, and instead forms part of the base cost when the property is eventually sold — which is worth keeping receipts for, because capital gains tax on residential property runs at 18% and 24% with an annual exempt amount of £3,000, and a disposal has to be reported and paid within 60 days of completion. See capital gains tax on property.
A different regime applies where you let furnished accommodation in your own home. Rent a Room relief exempts £7,500 a year, halved to £3,750 where the income is shared with someone else. Below the threshold it is automatic with nothing to report; above it you opt in — or out — on the tax return. It covers resident landlords and people running a bed and breakfast or guest house from home. It does not cover a home that has been converted into separate flats, and replacement of domestic items relief is unavailable on a rent-a-room property.
From 6 April 2017 there has been a £1,000 property income allowance. Below £1,000 of property income there is full relief and no need to report it at all. Above £1,000 you may deduct up to £1,000 instead of your actual expenses. Two restrictions decide whether it is any use: it cannot be claimed alongside the Section 24 finance cost reducer, and it cannot be set against rent-a-room income. For a mortgaged flat the real expenses and the reducer will almost always beat it. For a lock-up garage let for £900 a year, it means nothing to file.
Whose income is it
Where spouses or civil partners hold property jointly, the income is taxed 50:50 by default under s.836 ITA 2007 — regardless of how the beneficial interests are actually divided. That default is often the wrong answer where one of you pays tax at 40% and the other has unused personal allowance.
A Form 17 declaration under s.837 ITA 2007 overrides it. Four conditions decide whether it works:
The 60-day rule is the one that undoes people: a declaration signed in good time and posted late is simply ineffective, and the only remedy is to start again with a new declaration and a new date. If the beneficial interests need to change first, that is a conveyancing step with its own stamp duty and capital gains consequences, and it has to happen before the declaration, not after it.
Two further points for a first property. Buying an additional dwelling in England or Northern Ireland attracts the higher rates of Stamp Duty Land Tax where the price is £40,000 or more — the surcharge has been 5 percentage points since 31 October 2024, not 3. Wales charges Land Transaction Tax with its own higher-rate table, and Scotland charges Land and Buildings Transaction Tax with an 8% Additional Dwelling Supplement for transactions on or after 5 December 2024. The stamp duty calculator covers all three.
The first return sets the pattern for every one after it. It is worth setting it up properly once.
Registration, the property pages, the reducer, and the reliefs a first-year return most often leaves on the table.
Landlord tax returnsA simple digital record of rent and expenses per property — the thing that makes mandation a non-event when it reaches you.
Property bookkeepingThree questions about your gross rent and self-employment turnover, and the April your obligation starts.
Run the MTD checkerA reserve taken from the rent each month rather than found in January, with payments on account forecast before they land.
The landlord tax calendarStamp duty modelled across SDLT, LTT and LBTT, including the 5-point surcharge and Scotland's 8% supplement.
Stamp duty calculatorThe point at which the finance cost restriction starts to bite, and what it does to your threshold position.
Section 24 calculatorRegister with HMRC for self assessment and report the rental income on the property pages of a tax return. Tax on the year is due by 31 January following the end of that tax year. Once your liability is large enough for HMRC to ask for payments on account, you also make two instalments towards the next year, one on 31 January and one on 31 July. That is the second-year surprise: the January after your first full year can carry the balancing payment for that year and the first instalment for the next one on the same date. Set money aside from the first month's rent rather than from the first tax bill.
Probably not yet, but test the right number. Qualifying income is gross rent before expenses, added to any self-employment turnover — not profit. Over £50,000 was 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. Qualifying income of £20,000 or less carries an automatic and permanent exemption. On a jointly owned property only your share counts. So one flat is usually outside it for now, while a first-time landlord who also runs a business may already be inside.
The running costs of letting: agent fees, insurance, ground rent and service charges, repairs and maintenance, safety certificates, accountancy, and any utilities or council tax you bear. Mortgage interest is not among them — since 6 April 2020 residential finance costs give a 20% basic rate tax reducer instead of a deduction. Furniture and appliances are dealt with by replacement of domestic items relief in ITTOIA 2005 section 311A, which covers replacement but not the initial purchase and excludes fixtures such as baths, toilets, fitted furniture and boilers. Work that improves rather than restores the property is capital, so it belongs in the eventual capital gains computation.
Only within limits. Income from property held jointly by spouses or civil partners is taxed 50:50 by default under section 836 ITA 2007, whatever the underlying ownership. A Form 17 declaration under section 837 can override that, but only where the beneficial interests are genuinely unequal and the declaration reflects reality. It has to be made jointly, so if one of you will not sign, the 50:50 split stands. The declaration must reach HMRC within 60 days of the date of the declaration, and there is no power to extend that. It covers only income arising after the declaration date, so it is never a retrospective fix.
No, Rent a Room relief applies instead. It exempts £7,500 a year of income from furnished accommodation in your own home, halved to £3,750 where the income is shared with someone else. Below the threshold it is automatic and there is nothing to report; above it you opt in, or opt out, on your tax return. It covers resident landlords and people running a bed and breakfast or guest house from their home. It does not cover a house that has been converted into separate flats, and the £1,000 property income allowance cannot be set against rent-a-room income either.
A flat alternative to claiming your real expenses, and it has been £1,000 since 6 April 2017. If your property income for the year is £1,000 or less there is full relief and nothing to report at all. Above that you can deduct up to £1,000 instead of your actual costs, which suits a small unmortgaged letting with almost no expenses. Two restrictions matter. You cannot use it if you are claiming the Section 24 finance cost tax reducer, so it is off the table for most mortgaged buy-to-lets. And it cannot be set against rent-a-room income, which has its own separate relief.
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FreeAgent PartnerWe go through your first let with you: what you can claim, what to put aside each month, whether Making Tax Digital applies to you yet, and whether a Form 17 declaration is worth making before the year end.
One short email: what has changed in landlord tax, the dates coming up, and one number worth checking in your own figures.