HMRC clawed back £107 million in unpaid taxes from buy-to-let landlords in 2024/25, the highest annual total on record. This figure, recovered through compliance checks and disclosure schemes, shows how many property investors either misunderstand the rules or miss legitimate opportunities to reduce their tax bills. The rules are complex, especially now. Multiple changes are bedding in across 2026 and 2027, and the stakes are high. A Gravesend landlord with just two properties could be paying hundreds more in tax than necessary through simple misunderstandings about what counts as an allowable expense. 

This guide covers the essentials: what you can claim, what you cannot, and what is changing imminently. 

landlord expenses you can claim

When you rent out a property, you can deduct certain expenses from your rental income before calculating the tax you owe. These allowable expenses include the following. 

Mortgage interest  

This is claimable, but with a critical restriction. Since April 2020, individual landlords no longer receive full deductibility on mortgage interest. Instead, you get a basic-rate tax credit of 20% on the mortgage interest you pay. This means a higher-rate taxpayer (paying 40% tax on other income) gets only 20% relief on mortgage interest; the gap between your tax rate and relief rate creates additional tax liability. A higher-rate landlord with £10,000 annual mortgage interest pays £2,000 more tax than they would under the pre-2020 rules. From April 2027, the relief increases slightly to 22%, though that provides only partial offset against the new property income tax rates coming then. 

Repairs are fully deductible 

The distinction between repairs and improvements matters enormously. Repairs (fixing a broken boiler, repainting existing walls, replacing worn roof tiles) are business expenses. Improvements (converting a bathroom, building an extension, installing new central heating where none existed) are capital expenditure and not deductible in the same way. Landlords often lose tax relief by incorrectly categorising work as capital when it is actually repair. 

Other allowable expenses  

letting agent fees, property insurance, buildings insurance, council tax, water rates, electricity and gas, repairs and maintenance, gardening and grounds maintenance, cleaning costs, and advertising for tenants. 

You cannot claim mortgage capital repayment, improvements to the property, furniture and furnishings (though replacement of domestic items can be claimed under specific rules), or council tax if you do not pay it yourself. 

The mortgage interest relief trap (Section 24) 

The restriction on mortgage interest relief, introduced in April 2020 under Section 24, applies only to individual landlords. Limited companies are exempt and can still deduct mortgage interest in full before calculating corporation tax. This asymmetry has driven some larger landlords toward incorporation, though moving property into a company triggers Capital Gains Tax and Stamp Duty Land Tax complications. For most landlords, incorporation is not straightforward. 

Understanding the impact on your pocket matters 

A landlord earning £15,000 gross rental income from two properties would typically have expenses as follows: mortgage interest £8,000, repairs £2,000, insurance £600, letting agent fees £1,500. Total allowable expenses: £10,100. Taxable profit: £4,900. At basic rate (20%), this creates a tax bill of £980. However, only 20% of the £8,000 mortgage interest can be claimed as a tax credit; the remaining 80% cannot be deducted. This restriction adds approximately £160 to the bill compared to the pre-2020 rules. The 2% tax rate increase from April 2027 will amplify this further. 

Rent-a-room relief: The £7,500 allowance 

If you let out a furnished room in your home while living there as your main residence, rent-a-room relief is available. The first £7,500 of gross annual income from the lodger is tax-free; if you are a couple sharing the income, the threshold halves to £3,750 each. The relief is automatic if your income is below the threshold and you file no tax return. If income exceeds £7,500, you choose between two methods: either claim the £7,500 relief and pay tax only on income above that figure (no expenses deducted), or declare your actual profit after deducting genuine expenses. Whichever method creates the lower tax bill is the right choice, and you can switch between methods each year. 

furnished holiday lettings:what changed

Furnished Holiday Lettings received preferential tax treatment for decades. From April 6, 2025, that exemption ended. FHL income is now treated identically to standard rental income, subject to Section 24 mortgage interest restrictions. If you operated an FHL before April 2025, your tax position has changed. Professional advice is essential if your portfolio included this type of letting. 

april 2027 changes to landlord taxes 

Two significant changes arrive in April 2027. First, property income will be taxed at new, property-specific rates rather than standard income tax rates. The new rates are 22% (basic), 42% (higher), and 47% (additional); these are 2 percentage points above standard rates. Second, mortgage interest relief will increase from 20% to 22% credit. This is modest improvement but does not offset the rate increase for higher-rate landlords. 

Capital Gains Tax on property sale 

When you sell a rental property, you may face Capital Gains Tax on the increase in value since purchase. Private Residence Relief applies if the property has been your main home at any point, but it is restricted for periods when it was let out exclusively to tenants. The annual exemption (currently £3,000 for the 2025/26 tax year) applies to all capital gains combined. 

Getting the calculation right 

A sole trader landlord with multiple properties should treat their portfolio as a business; detailed record-keeping, regular profit reviews, and understanding mortgage interest restrictions are non-negotiable. Making Tax Digital becomes mandatory from April 2026 for landlords earning over £50,000. Digital record-keeping, frequent review, and structured reporting reduce errors and often reveal missed deductions. Our MTD readiness checklist walks you through software selection, deadline management, and establishing your reporting workflow asap. 

The £107 million HMRC clawed back from landlords in 2024/25 suggests that many are either underreporting income or missing legitimate expense claims. Asking the right strategic questions before your tax year ends could identify savings or prevent costly compliance mistakes. Call us on 01322 250001 or complete our contact form for a call back. 

frequently asked questions about landlord and property tax

Can I deduct mortgage interest on a buy-to-let property? 

You can claim mortgage interest as a tax credit at 20% for 2026/27 (rising to 22% from April 2027), not as a full deduction. This applies only to individual landlords. Limited companies can deduct mortgage interest in full. 

What is the difference between rent-a-room relief and the property allowance? 

Rent-a-room relief applies to rented furnished rooms in your main residence where you live. The allowance is £7,500 per household. The property allowance is a separate £1,000 exemption for rental income from properties (such as second homes, furnished lets, holiday lets, or parking spaces), but it cannot be combined with rent-a-room relief for lodger income in your main residence. 

Are Furnished Holiday Lettings still tax-efficient? 

No. From April 6, 2025, FHL exemptions ended. FHL income is now subject to the same Section 24 mortgage interest restrictions as standard rental income. If you operate an FHL, professional advice on restructuring is worthwhile. 

How do I know if work is a repair or an improvement? 

Repairs restore a property to its original state; improvements enhance it beyond that. A broken boiler replacement is a repair (deductible). Adding a new bathroom is an improvement (capital). If in doubt, ask your accountant before the work begins. 

Will the April 2027 changes affect me? 

Yes, if you own rental property personally. Property income will be taxed at 22%, 42%, or 47% instead of standard rates. Mortgage interest relief increases to 22%, but the gap remains significant for higher-rate landlords. Professional planning now can mitigate the impact. 

About the author 

Michelle Adams is a qualified accountant and director of Adams Accountancy, a friendly accountancy practice based in Dartford, Kent. With over 15 years of experience helping small and medium businesses, including landlords and property investors across Kent, Michelle specialises in making tax straightforward and stress-free. Adams Accountancy serves clients across Kent and beyond. No question is too silly when it comes to understanding your tax obligations. 

Contact Adams Accountancy on 01322 250001 or email info@adams-accountancy.co.uk for a free, no-obligation conversation about your rental property tax position or any other tax question.