Accounting for Landlords
Record rental income and expenses correctly, handle mortgage interest relief and get ready for MTD as a UK landlord.
Letting property is a business, even when it is only a single buy-to-let flat. HMRC treats your rental income as taxable, and getting the bookkeeping right protects your profit and keeps your Self Assessment return clean. This guide walks through how property income is taxed, which costs you can deduct, the difference between repairs and improvements, and how Making Tax Digital (MTD) for Income Tax will change the way landlords report. For a wider view of sector-specific advice, see our industry accounting guides hub .
How rental income is taxed
Most landlords are taxed on the profit from their property business, not the gross rent. You add up the rent you are entitled to receive in the tax year, subtract your allowable expenses, and the remaining profit is added to your other income and taxed at your marginal Income Tax rate.
A few points worth knowing:
- All your UK residential lettings are usually pooled into a single property business, so profits and losses across properties are netted off.
- Losses generally cannot be set against your other income, but they can be carried forward to reduce future rental profits.
- A small property allowance lets you receive a limited amount of rental income tax-free; above that, you either deduct the allowance or your actual expenses, whichever suits you better.
Most landlords now use the cash basis by default, recording income when received and expenses when paid. You can elect for the accruals basis if it suits your circumstances. The distinction matters for timing, and you can read more in our guide to cash basis versus accruals .
Allowable property expenses
You can deduct costs that are incurred wholly and exclusively for the letting. Common examples include:
- Letting agent and management fees
- Buildings and contents insurance
- Ground rent, service charges and council tax (where you pay it)
- Maintenance, cleaning and gardening between tenancies
- Accountancy fees and the cost of advertising for tenants
- Utilities and broadband you cover during void periods
If a cost is partly private, only the business proportion is deductible. Our general guidance on allowable business expenses applies to property too.
Mortgage interest and the tax credit
This is the area that catches most landlords out. For residential lettings, you can no longer deduct mortgage interest as a straightforward expense against rental profit. Instead, finance costs are relieved as a basic-rate tax credit.
In practice this means:
- Your taxable rental profit is calculated before deducting mortgage interest.
- You then receive a tax reduction equal to the interest multiplied by the applicable basic rate.
For higher-rate taxpayers this is less generous than the old full deduction, and it can push some landlords into a higher tax band on paper. The credit-based treatment generally does not apply to furnished holiday lettings or to companies, which is one reason some landlords review whether to hold property through a limited company .
Repairs versus improvements
The line between a repair and an improvement decides whether a cost is deducted now or treated as capital.
| Treatment | Examples | Tax effect |
|---|---|---|
| Repair (revenue) | Replacing a broken boiler with an equivalent, repainting, fixing a roof | Deducted against rental income in the year |
| Improvement (capital) | Adding an extension, upgrading to a much higher specification, converting a loft | Added to the property’s cost for Capital Gains Tax when you sell |
A useful rule of thumb: restoring the property to its previous condition is usually a repair, while making it materially better or different is usually capital. Day-to-day repairs are posted to repairs and maintenance in the chart of accounts. Keep evidence for both, because the treatment affects different tax calculations.
Furnished and holiday lettings
If you let a property fully furnished, you can claim replacement of domestic items relief for like-for-like replacements of furniture, white goods and similar items (the original purchase is not deductible, only the replacement).
Furnished holiday lettings (FHL) have historically had their own, more favourable rules. This regime has been subject to change, so check the current position before relying on FHL treatment, and keep clear records of how the property is advertised and actually let.
Joint ownership
Where a property is owned jointly, the rental profit is usually split according to ownership shares. Married couples and civil partners are typically taxed 50/50 by default, even if the legal shares differ, unless they make a valid declaration to reflect the actual beneficial split. For other joint owners, profits follow the agreed ownership proportions. Document the arrangement so each owner reports the correct figure on their own return.
MTD for Income Tax for landlords
Making Tax Digital for Income Tax is being phased in for landlords and the self-employed once their qualifying income exceeds the relevant threshold. When it applies, you will need to:
- Keep digital records of property income and expenses
- Send quarterly updates to HMRC using compatible software
- Submit a final declaration after the tax year
This replaces the once-a-year Self Assessment habit with regular, software-driven reporting. It pays to get your bookkeeping into shape early. See our detailed guide to MTD for Income Tax explained and the wider Making Tax Digital and software hub .
Record keeping
Good records make every step above easier and protect you if HMRC asks questions. Keep:
- Tenancy agreements and rent statements
- Invoices and receipts for every expense
- Mortgage interest certificates from your lender
- Records of capital improvements for future Capital Gains Tax
- Bank statements separating personal and property transactions
Storing these digitally now positions you well for MTD. For broader support, browse our tax and VAT guides .