Question 1

How is landlord tax calculated in 2025/26?

Accepted Answer

Your rental profit (income minus allowable expenses — but not mortgage interest) is added to your other income. You pay income tax at 20%, 40%, or 45% on the combined amount above your £12,570 personal allowance. You then receive a Section 24 tax credit equal to 20% of your mortgage interest, reducing the final bill.

Question 2

What is the Section 24 mortgage interest restriction?

Accepted Answer

Section 24, fully phased in since the 2020/21 tax year, prevents individual landlords from deducting mortgage interest as an expense against rental profits. Instead, you receive a basic-rate (20%) tax credit on the interest. For basic-rate taxpayers the net result is the same, but higher-rate (40%) and additional-rate (45%) taxpayers pay significantly more tax than before the restriction.

Question 3

What expenses can I deduct as a landlord?

Accepted Answer

You can deduct letting agent fees, property management costs, maintenance and repairs (not improvements), landlord insurance, ground rent, service charges, utility bills you pay, and accountancy fees. You cannot deduct mortgage capital repayments, your own time, or the cost of purchasing the property. Mortgage interest is no longer deductible — it is replaced by the 20% tax credit.

Question 4

Should I move my rental properties into a limited company to avoid Section 24?

Accepted Answer

A limited company can still deduct mortgage interest in full, pays corporation tax at 19–25% on profits, and is unaffected by Section 24. However, transferring existing properties to a company triggers a Stamp Duty Land Tax charge (including the 3% additional-dwelling surcharge) and potentially Capital Gains Tax on the market-value gain. The upfront costs can take 5–10+ years to recoup. It is usually only worth it when buying new properties, not incorporating an existing portfolio.

Question 5

How does my other income affect the tax on rental profits?

Accepted Answer

Rental profit is added on top of your other income when working out which tax band applies. If your employment income already takes you to the higher-rate threshold (£50,270), every pound of rental profit will be taxed at 40%. The Section 24 credit is always just 20% of mortgage interest — so the 'gap' between your marginal rate and the 20% credit is your extra Section 24 cost.

Question 6

Do I need to complete a Self Assessment tax return as a landlord?

Accepted Answer

Yes. If your total rental income exceeds £1,000 in a tax year you must register for Self Assessment and file a tax return. HMRC require this even if your rental profit is zero or you have a net loss after expenses.

Landlord Tax Calculator 2025/26 — Section 24 Included

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