For landlords
UK property income for the 2026-27 tax year: what's tax-free, what's restricted, and what Making Tax Digital asks you to track.
What it means
Rental income is taxed as income, not capital gains — it's added to your other income and taxed at your marginal Income Tax rate, reported through Self Assessment (or Making Tax Digital for Income Tax, once you're mandated).
What you must do
- The £1,000Property Allowance is automatic — rental income at or below it is tax-free and doesn't need declaring. Above it, choose between the allowance or claiming actual expenses — whichever gives the bigger deduction, never both.
- Renting a furnished room in your own home: the Rent-a-Room limit is £7,500, halved to £3,750 when you share the income with someone else. At or below the limit, relief is automatic; above it, you must actively elect between the Rent-a-Room method and the ordinary expenses method.
- Mortgage interest and other residential finance costs aren't deducted from rental income directly — instead you get a 20% tax credit (Section 24) on the lowest of your finance costs, your property profit, and your adjusted total income. This hits higher-rate taxpayers hardest, since the credit is capped at basic rate regardless of the rate you actually pay.
- Cash basis (tax on rent received, not rent invoiced) is the default up to £150,000 of property receipts. Above that you can still elect into it, or use accruals accounting.
What changed: Furnished Holiday Lettings
The separate Furnished Holiday Lettings tax regime has been abolished — qualifying holiday lets are now taxed as ordinary property income, with no special capital allowances and no special treatment for pension purposes. gov.uk: repeal of the Furnished Holiday Lettings regime.
What you can safely skip
If your gross rental income is at or below the Property Allowance, or fully covered by Rent-a-Room, there's nothing to declare and nothing to optimise — the relief is automatic.
How to optimise
Weigh the Property Allowance against your actual expenses every year — whichever is bigger wins, and the allowance can never create a loss. If you have residential finance costs, check whether the actual-expenses route (which keeps the Section 24 credit alive) beats the flat allowance before you claim it.
MTD property categories
Once you're mandated, each quarterly update reports totals against HMRC's own property categories — the same fields our records tool sorts into:
- Total rent
- Other income from property
- Premiums for the grant of a lease
- Reverse premiums and inducements
- Rent, rates, insurance and ground rents
- Property repairs and maintenance
- Non-residential property finance costs
- Legal, management and other professional fees
- Costs of services provided, including wages
- Travel expenses
- Other allowable property expenses
- Residential property finance costs
- Residential finance costs brought forward
Residential finance costs are always tracked separately, even under simplified reporting — that's what feeds the Section 24 credit above.