Landlord Tax 2026/27 — Section 24 & Allowable Costs

Being a residential landlord in 2026/27 means working with the post-Section 24 tax world: an individual landlord generally cannot deduct residential finance costs from rental income as an expense, receiving instead a basic-rate tax reduction calculated under the finance-cost rules. For a higher-rate landlord that can reduce relief compared with a full deduction. The other rules matter just as much — what counts as an allowable expense, how replacement domestic-items relief works, the current additional-dwelling SDLT bands and the 18%/24% capital gains tax rates when you sell. Run your property through the Landlord Tax Calculator→ to see the real bill.

The direction of travel has been consistent for years: property income is taxed at your marginal rates, interest relief is capped at basic rate, and the tax advantages that holiday lets once enjoyed have been abolished. Understanding the current rules is the difference between a profitable portfolio and one that quietly loses money.

Section 24 — The Mortgage Interest Restriction

Since April 2020 the full restriction has applied: mortgage interest is added back to income, and you claim a tax credit equal to 20% of the interest. The effect on a higher-rate landlord is immediate:

A basic-rate landlord is broadly unaffected, because the 20% credit matches the deduction they would have claimed. Higher-rate landlords pay £1,600 more on this example, and additional-rate landlords pay even more. The credit cannot reduce your tax below zero, and unused credit is lost — it is not a refund.

Allowable Expenses

Repairs that keep the property in its current state are deductible; improvements that enhance it are capital and only matter on sale for CGT. This distinction is the most common source of HMRC adjustments in landlord returns, so keep receipts and label each invoice as repair or improvement at the time.

Replacement of Domestic Items Relief

For furnished lets, you can deduct the cost of replacing a domestic item with a like-for-like equivalent — a sofa, bed, washing machine, cooker or fridge — but not the cost of the first purchase. The relief is the cost of the replacement minus any proceeds from selling the old item. Buying better quality is allowed, but only up to the cost of an equivalent item. This replaced the old wear-and-tear allowance, and with the FHL regime abolished, the same replacement rules now apply to holiday lets too.

The £1,000 Property Income Allowance

If your gross rental income is £1,000 or less in a tax year, the Property Income Allowance makes the whole amount tax-free and you do not need to report it. Above £1,000, you choose each year between deducting actual expenses or claiming the £1,000 allowance instead of expenses. For a small portfolio with few deductible costs, the £1,000 allowance can beat itemising — but once mortgage interest, repairs and fees exceed it, the real-expenses route wins. Landlords renting through a company or under the rent-a-room scheme have separate rules.

Buying and Selling Property

Buying an additional dwelling (a buy-to-let or second home) in England or Northern Ireland uses the current higher SDLT bands: for an effective date on or after 1 April 2025, the rates are 5%, 7%, 10%, 15% and 17% by slice. A £300,000 buy-to-let therefore incurs £20,000 SDLT under the higher-rate table, not a standard bill plus a separate 5% charge on the whole price. Selling is taxed through CGT at 18% for gains falling in the basic-rate band and 24% above it, after the £3,000 annual exempt amount and allowable gain deductions. Rental expenses and finance costs do not reduce the capital gain in the same way as rental profit; acquisition and qualifying improvement costs do.

Real Example: A Basic-Rate Landlord's Choice

Tom has rental income of £9,000, mortgage interest of £1,500 and other expenses of £1,200. His salary keeps him in the basic rate band.

At a 20% basic rate, the actual-expenses route gives £1,560 tax on the £7,800 profit before the £300 finance-cost reduction, or about £1,260 after that reduction. The £1,000 property-allowance route gives £1,600 on £8,000, subject to the wider tax position. The choice is year-specific and the allowance cannot be combined with actual expenses for the same property business.

How Interest Relief Affects Your Effective Rate

The Section 24 rules can create a difference between taxable property profit and cash profit: finance costs are not deducted from an individual landlord’s property profit, but a separate basic-rate tax reduction may be available. That higher taxable income can affect tax bands and means a higher-rate landlord may receive less relief than under a full deduction. A company has different corporation-tax and finance-cost rules, but incorporation also brings extraction, compliance, financing and transaction costs; compare the full position rather than assuming it is automatically better.

Common Landlord Tax Mistakes

• Deducting mortgage interest as an expense — it must be added back with the 20% credit claimed instead.
• Claiming the first purchase of furniture — replacement relief only covers like-for-like replacements.
• Calling improvements repairs — enhancements are capital, not revenue expenses.
• Ignoring the £1,000 allowance — on a small portfolio it can beat itemised expenses.
• Forgetting the higher SDLT bands on purchases — current additional-dwelling rates apply by slice, not as a flat 5% added to the whole price.

Reporting Rental Income

Rental income must be reported on your Self Assessment return — property income sits on top of your salary and pushes income up the tax bands. The return asks for total rents, deductible expenses and the Section 24 credit in separate boxes, so keeping a clean property ledger makes filing simple. Tax is due by 31 January 2028 for 2026/27, with payments on account from that date if your liability exceeds £1,000 and more than 80% of your tax is not collected at source. Non-resident landlords must register for the Non-Resident Landlord Scheme (NRL) so rent is paid without basic-rate withholding. Joint owners each report their share, and losses can carry forward against future property profits but not against other income.

Action Plan for 2026/27

Frequently Asked Questions

Turning a policy change into a return-ready file

Make a property schedule for each dwelling and reconcile it monthly. Record rent due and rent received separately, deposits and refunds separately, and repairs with an explanation of the work. Keep capital invoices even when they are not deductible against rent, because they may matter on a later disposal. If an agent supplies a net statement, obtain the underlying gross and expense information.

Check whether the property is personally owned, jointly owned, in a partnership or held through a company. Confirm beneficial ownership rather than relying on the name on the mortgage or agent account. Review elections, losses, furnished status, short-term letting, overseas property and periods of private occupation. Each can change which rules apply.

Finally, make a cash tax forecast using the correct payment dates. Tax on profit, finance-cost relief and payments on account can occur at different times. Preserve the version of HMRC guidance used, label announced measures as announced until enacted, and update the forecast when the law or the property facts change.

Keep a dated copy of the policy or HMRC guidance used for the return, because an announcement, consultation and enacted rule do not have the same legal effect.

A landlord's change-control checklist

When a tax policy changes, begin with the property business records rather than a headline rate. Reconcile rent received, deposits, insurance, repairs, service charges, agent fees, finance costs and capital improvements. A repair restores an existing asset; an improvement may be capital. Keep invoices and explanations so the treatment can be revisited if the property is sold or the facts change.

Then check ownership and use. A jointly owned property, partnership, company, furnished accommodation, holiday letting and property abroad can each have different filing and relief consequences. The person who receives rent is not always the person who owns the beneficial interest. Record changes in ownership, refinancing, occupation, letting periods and elections when they happen, not at the end of the tax return.

Finally, model cash flow separately from taxable profit. A mortgage payment can contain capital repayment and finance cost; a tax reduction is not the same as cash received. Budget for Self Assessment payments, keep a reserve for repairs and do not promise a tenant a tax outcome that depends on future legislation. Check HMRC guidance again before filing where a reform is announced but not yet enacted.

Model your portfolio with the Landlord Tax Calculator→, then read the Furnished Holiday Lettings guide for the abolished regime, the Capital Gains Tax on Property guide and the Rent-a-Room Scheme guide for lodger income.

Official sources

• GOV.UK: Paying tax when renting out a property
• HMRC: Changes to tax relief for residential landlords
• GOV.UK: Tax-free allowances on property and trading income
• HMRC: Income Tax when you rent out a property
• GOV.UK: SDLT on additional residential properties
• GOV.UK: Capital Gains Tax rates
• HMRC: Capital Gains Tax rates and allowances

These GOV.UK and HMRC pages are the official references for rental income, landlord reliefs, SDLT and property CGT. Check the current tax year and property facts before relying on a calculator estimate.