Last reviewed: 29 September 2026 · Reviewed by IFM's qualified accountant
The rules differ for companies, commercial property, overseas property and rent from a room in the landlord's home. Identify the ownership and activity before calculating tax.
What should you know about record all rental income?
Rental income includes rent and amounts received for services such as cleaning, heating or use of furniture. Deposits become income only in circumstances where the landlord becomes entitled to keep them; protected deposits held for the tenant are not ordinary rent.
Maintain records by property and ownership share. Reconcile letting-agent statements to bank receipts, and record fees withheld before the net payment. The tax return normally needs the gross rent and separate expenses, not only the cash received from the agent.
Joint owners generally report their share. Spouses and civil partners living together have specific default rules and may need Form 17 with evidence to use unequal beneficial shares.
What should you know about the 2026/27 property allowance?
The property allowance is up to £1,000 per individual for 2026/27. Where gross property income is £1,000 or less and no exclusion applies, full relief can remove the charge and reporting requirement.
If gross income exceeds £1,000, partial relief may deduct the allowance instead of actual expenses. It cannot create a loss, and actual costs cannot also be deducted under that method.
The allowance cannot be used with the residential-property finance-cost tax reduction or against rent-a-room income, and connected-party exclusions apply. Compare actual expenses before electing.
What should you know about allowable expenses?
Day-to-day costs incurred wholly and exclusively for letting can include letting-agent fees, accountants' fees, buildings and contents insurance, Council Tax paid by the landlord, utilities, ground rent, service charges, cleaning, gardening and repairs.
A repair restores an asset; an improvement creates or enhances it. Replacing a broken kitchen with a modern equivalent may be a repair, while adding an extension or materially higher specification is capital. Capital cost can be relevant when calculating a later gain even where it is not deductible from rent.
Keep invoices, descriptions, photographs where useful and evidence of the condition before and after significant work.
What should you know about replacement of domestic items?
Relief can apply when replacing domestic items in a residential property, such as furniture, appliances or kitchenware, if conditions are met. It broadly covers the cost of an equivalent replacement plus disposal, less proceeds from the old item; improvement cost is restricted.
The initial purchase for a newly furnished property does not normally receive this replacement relief. Furnished holiday letting rules ended in April 2025, so do not rely on older special treatment for 2026/27.
What should you know about mortgage interest and finance costs?
For an individual with residential property, mortgage interest and other finance costs are generally not deducted in calculating rental profit. Instead, qualifying costs can produce a basic-rate tax reduction, subject to statutory limits and carry-forward rules.
Capital repayments are never an expense. Separate interest, arrangement fees and repayments from the lender statement.
Companies and commercial property can have different finance-cost treatment. Do not use the individual residential method for every landlord structure.
What should you know about cash basis?
Cash basis is the default for many individual property businesses, recognising most income when received and expenses when paid. A landlord can elect for traditional accounting where eligible and appropriate.
Large businesses and some circumstances fall outside cash basis. Deposits, finance costs, capital items and losses still have detailed rules, so cash basis is not simply the bank-statement total.
Use one method consistently and document any election.
What should you know about rent a Room Scheme?
For 2026/27, the Rent a Room threshold is £7,500 for furnished accommodation in the individual's main home, halved to £3,750 where someone else receives income from letting accommodation in the same property.
If receipts exceed the threshold, the landlord can choose between actual profit and the rent-a-room method where eligible. The scheme does not apply to every short-term let or property business, and it cannot be combined with the property allowance for the same income.
What should you know about mTD for Income Tax?
Gross property income combines with gross sole-trade income for MTD threshold testing. Those over £50,000 on the 2024/25 return entered MTD from 6 April 2026; over £30,000 on 2025/26 enters from April 2027, and over £20,000 on 2026/27 enters from April 2028.
Affected landlords keep digital records and send updates for 2026/27 by 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027, then submit the final return by 31 January 2028.
What should you know about losses?
A UK property-business loss generally carries forward against future profit from the same property business rather than reducing salary or dividends immediately. Finance-cost tax-reduction restrictions can create carried-forward amounts that are not the same as a property loss.
Track losses and unused finance costs separately. An overseas property business also has separate pooling rules.
What should you know about selling or changing use?
Sale of a residential property can create Capital Gains Tax and a UK property return with a shorter reporting and payment deadline. Main-residence relief, ownership history and enhancement expenditure require evidence.
Moving into, out of or between properties can affect reliefs. Gifts, transfers between spouses, incorporation and changes to beneficial ownership are disposals or legal events that need advice before documents are signed.
What should you know about a controlled annual file?
Keep tenancy agreements, completion statements, loan records, agent statements, safety and insurance costs, invoices, mileage and ownership documents. Reconcile each property and retain capital costs separately from revenue repairs.
See sole trader and landlord support for the relevant service page. Use the Deadline Finder for standard first accounts, first confirmation statement and Corporation Tax dates. For VAT, payroll, personal tax and other obligations, check the tax deadlines calendar and your official records.
What should you know about repairs at the start of a letting?
Work needed before first letting can be revenue or capital depending on the property's condition, purchase price and nature of the work. A repair is not automatically capital merely because it occurs before the first tenant, but bringing an unusable property into a lettable condition may indicate capital expenditure.
Keep the survey, purchase particulars, invoices and photographs. Split mixed invoices between repair and improvement on a reasonable evidenced basis.
What should you know about ownership and legal records?
The tax result follows legal and beneficial ownership, not simply which bank account receives rent. Keep Land Registry documents, declarations of trust, loan agreements and evidence of any change.
Do not transfer an interest solely by changing a spreadsheet percentage. Stamp Duty Land Tax, Capital Gains Tax, lender consent and legal formalities can apply.
What should you know about review before filing?
Reconcile gross rent, agent fees, deposits retained, repairs, finance costs and ownership shares. Compare the return with the prior year and explain vacancies, large works and disposals.
Check MTD qualifying income before deducting expenses. Save the return, property schedules and evidence together so the next year's opening position is clear.
When an agent is involved?
Agree who receives rent statements, records repairs, retains tenancy documents and approves the return. The landlord remains responsible for complete information even where an agent manages the property and an accountant files the tax return.
Ask the letting agent for a full-year gross-income and fee statement, not only monthly net deposits. Reconcile it to the bank and investigate deposits, arrears and refunds.
Review the ownership, mortgage and MTD position whenever a property is bought, sold, transferred or changes use. These events can alter more than one tax and filing obligation.
What should you read next?
Use the Deadline Finder for standard first accounts, first confirmation statement and Corporation Tax dates. For VAT, payroll, personal tax and other obligations, check the tax deadlines calendar and your official records.
What do people also ask about this topic?
What should you know about record all rental income?
Rental income includes rent and amounts received for services such as cleaning, heating or use of furniture. Deposits become income only in circumstances where the landlord becomes entitled to keep them; protected deposits held for the tenant are not ordinary rent.
What should you know about the 2026/27 property allowance?
The property allowance is up to £1,000 per individual for 2026/27. Where gross property income is £1,000 or less and no exclusion applies, full relief can remove the charge and reporting requirement.
What should you know about allowable expenses?
Day-to-day costs incurred wholly and exclusively for letting can include letting-agent fees, accountants' fees, buildings and contents insurance, Council Tax paid by the landlord, utilities, ground rent, service charges, cleaning, gardening and repairs.
What should you know about replacement of domestic items?
Relief can apply when replacing domestic items in a residential property, such as furniture, appliances or kitchenware, if conditions are met. It broadly covers the cost of an equivalent replacement plus disposal, less proceeds from the old item; improvement cost is restricted.
Which official sources support this guide?
- https://www.gov.uk/renting-out-a-property/paying-tax
- https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income
- https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
General guidance, not advice for your situation.
