Becoming a landlord in 2026 is a bigger commitment than it was a decade ago. Mortgage interest relief has been restricted, the Furnished Holiday Lettings regime has been abolished, Stamp Duty surcharges on additional homes have risen, and Making Tax Digital for Income Tax begins to apply to many landlords from April 2026.

If you are letting your first property this year, this guide walks you through every stage: choosing the right type of let, the costs and paperwork before tenants move in, the taxes you will owe, and the everyday practicalities of running a tenancy.

For tailored support on planning, tax returns, bookkeeping or property tax structuring, the Target Accounting team is here to help.

What Counts as Being a Landlord?

A landlord is anyone who owns property rented out to a tenant, whether for a single weekend or a multi year tenancy. Before you commit, take an honest look at the basics:

• What kind of letting will you offer?
• Are there any special rules for that property type?
• How much capital are you putting in, and how much will sit in reserve for void periods or repairs?
• What rental yield do you expect after costs?
• What capital gain might you make on eventual sale?
• What are your tax obligations from day one?
• What happens if a tenant stops paying?
• Do you have a written tenancy agreement?
• Is property still the right home for your money compared with other investments?

The Main Types of Rental Property in the UK

Your tax position, the rules you need to follow and the licences you may need all depend on which type of letting you choose.

Renting a Room in Your Own Home

This covers furnished living space inside the home you live in:

• A lodger who shares your kitchen or bathroom
• Short term hosting through Airbnb or similar platforms while you remain resident
• It does not cover bed and breakfast businesses, office space, or self contained units

The Rent a Room scheme gives a £7,500 annual tax free allowance on income from a lodger in your own home. If you stay below the threshold, you do not need to report anything. Above £7,500, you declare the gross income on your Self Assessment return and choose between deducting actual expenses or claiming the £7,500 allowance.

Buy to Let

Residential property bought or kept to rent out, such as a flat or house, is the most common form of letting in the UK and the main focus of this guide.

HMRC expects you to keep furnished and unfurnished lets clearly separated in your records.

Furnished Holiday Lettings (Now Abolished)

The Furnished Holiday Lettings (FHL) regime was abolished from 6 April 2025 (1 April 2025 for companies). Short term holiday lets are now taxed under the standard property income rules.

In practice this means:

• No more full deduction of mortgage interest. You receive a 20% basic rate tax credit instead.
• No new capital allowances on furniture, fixtures or equipment. You can claim Replacement of Domestic Items Relief on like for like replacements.
• No Business Asset Disposal Relief at 10% on sale. Standard residential CGT rates of 18% and 24% apply.
• Profits no longer count as relevant earnings for pension contributions.
• Existing capital allowance pools can still receive Writing Down Allowances on the unrelieved balance.

If you already own a holiday let or you are considering one, the commercial case is now closer to a standard buy to let, so model your numbers on that basis.

Commercial Property

Renting out shops, offices and business units is treated as commercial property. VAT may apply on the purchase, and you can opt to tax the property to charge VAT on rents. The option to tax is hard to reverse, so seek advice before choosing this route.

Houses in Multiple Occupation (HMOs)

A property let to three or more people from different households who share a kitchen or bathroom is an HMO. Larger HMOs need a mandatory licence from the local council. Most HMOs are also subject to:

• Housing Health and Safety Rating System (HHSRS) inspection
• Stricter fire safety rules, including fire doors and alarms
• Local additional or selective licensing in some councils

Always check your local authority website before buying or converting an HMO and budget for inspection delays and fitting out costs.

Other Income From Land

Some land based income has no special regime. It is simply taxable property income on your Self Assessment return. Examples include renting out a parking space, fees from film crews using your home, and licensing for shooting or fishing rights.

Setting Up as a Landlord

Once you have decided what you are letting and to whom, get everything in order before the first tenant moves in.

Costs to Budget For

Few properties are tenant ready on day one. Allow for:

• Repairs and decoration to bring the property up to letting standard
• Carpets, curtains, blinds and other fixtures
• Furniture, if let furnished
• Mortgage payments and utilities while the property is empty
• Energy Performance Certificate, gas safety, electrical safety and any HMO certificates
• Solicitor fees for tenancy agreements
• Letting agent fees for finding and vetting tenants
• New meters or smart meters if you are reorganising utility accounts

Documents You Need Before the First Tenancy

• A valid Energy Performance Certificate (EPC) with a minimum E rating for new tenancies in England and Wales
• A written Assured Shorthold Tenancy or other appropriate tenancy agreement
• A signed inventory and schedule of condition
• Written consent to let from your mortgage lender
• HMO licence, if applicable
• Annual Gas Safety Record (CP12)
• Electrical Installation Condition Report (EICR), valid every five years
• Permission from a head landlord on a leasehold flat
• Specialist landlord insurance, including buildings, contents where relevant, and rent protection if you want it

Day to Day Management

Running a tenancy is not just collecting rent. Decide who handles each task, you or a managing agent:

• Collecting rent and chasing arrears
• Holding the deposit in a government approved deposit protection scheme
• Carrying out check in and check out inventories
• Acting as the contact for repairs and complaints
• Arranging routine and emergency maintenance
• Periodic property inspections
• Finding and referencing new tenants
• Keeping accurate records of income and expenditure
• Paying ground rent, service charges, insurance and bills where they are your responsibility

Profits and How They Are Taxed

Rental profit is your gross rents less allowable expenses. Income tax is then due at your marginal rate on that profit. Mortgage interest is no longer a direct expense for individuals letting residential property. Instead, you receive a 20% basic rate tax reducer against your tax bill.

This change, often called Section 24, can push higher earners into the 40% or 45% band on paper, even if their cash position has not changed. Modelling your tax position carefully matters more than ever in 2026.

Capital Gains When You Sell

When you sell a buy to let, your gain is the sale price less the original purchase price, less buying and selling costs and capital improvements. Mortgage interest and other finance costs are not deductible from a capital gain.

Key 2026 figures:

• The annual CGT exempt amount is £3,000 for individuals
• Residential property gains are taxed at 18% within the basic rate band and 24% above it
• UK residential property disposals must be reported and the tax paid within 60 days of completion

Keep receipts for any improvements such as extensions, new bathrooms or loft conversions, since these reduce the taxable gain on sale.

Allowable Expenses for Landlords

HMRC requires you to declare gross rental income, then deduct any expense that was incurred wholly and exclusively for the property, with no private use element.

The main expense categories include:

Ground Rent and Service Charges

Ground rent on a leasehold property and service charges paid to a freeholder or management company are deductible.

Council Tax, Business Rates and Water

If you pay these between tenancies or under the tenancy agreement, you can claim them.

Insurance

Landlord buildings insurance, contents insurance for items you own, public liability cover and rent guarantee insurance are all deductible. Personal life insurance taken to cover a mortgage is not.

Letting Agent and Management Fees

Commission, tenant finding fees, inventory fees and ongoing property management charges are all deductible.

Utilities

If you cover gas, electricity or broadband during voids or as part of an inclusive rent, the cost is deductible.

Cleaning and Gardening

Regular gardening, communal cleaning and end of tenancy cleans you pay for are allowable.

Travel

Reasonable travel for inspections, viewings and repairs may be claimed. Keep a mileage log.

Repairs Versus Improvements

This is where landlords most often go wrong. The treatment depends on the work:

• Repairs that restore the property to its previous condition (redecoration, replacing a worn boiler with a similar model, fixing a roof) are deductible from rental income.
• Replacements of domestic items like beds, cookers and curtains qualify for Replacement of Domestic Items Relief, on a like for like basis.
• The first time fitting of furniture or equipment in a residential property is not relievable against income.
• Improvements such as extensions, loft conversions or upgrading to a higher specification are capital. They reduce your CGT bill on sale rather than your rental profit.

Professional Fees

Accountancy fees, ongoing legal advice on tenancies, debt collection and certifications are deductible from income. Legal fees for buying or selling the property are capital and reduce the gain on sale.

Advertising

Costs of advertising for tenants are deductible. Marketing and agency fees on sale come off the capital gain.

Finance Costs

Mortgage interest, arrangement fees and bank charges on borrowing for the property are all relievable, but for individuals letting residential property the relief is given as a 20% tax reducer rather than a deduction from profit. Capital repayments are never deductible.

Stamp Duty Land Tax (SDLT)

SDLT applies to property purchases in England and Northern Ireland. It is paid by the buyer and is due within 14 days of completion. Scotland has Land and Buildings Transaction Tax (LBTT) and Wales has Land Transaction Tax (LTT), with their own bands.

The current thresholds, in place since 1 April 2025, are:

Two important points for landlords:

• The additional property surcharge rose from 3% to 5% on 31 October 2024. Almost every buy to let or second home is hit by this surcharge.
• Non UK resident buyers pay a further 2% on top of all the rates above.

For commercial property:

You can model your liability on the official HMRC calculator at gov.uk before you commit to a purchase.

Income Tax on Rental Profit

Rental profits are added to your other income and taxed at your marginal rate of 0%, 20%, 40% or 45%. National Insurance is not currently charged on rental income. From April 2027, the government has confirmed a 2 percentage point increase on tax rates that apply to property income, so basic rate property income will be taxed at 22%, higher rate at 42% and additional rate at 47%. This change is delayed but worth planning for now.

If you receive student loan repayments through Self Assessment, rental profit is included in the income that triggers them. Rental profit can also affect High Income Child Benefit Charge thresholds.

The £1,000 property income allowance lets you ignore rental income up to that level without reporting. Above £1,000, you can deduct either the £1,000 allowance or your actual expenses, whichever is greater.

Making Tax Digital for Income Tax

From 6 April 2026, MTD for Income Tax becomes mandatory for sole traders and landlords whose combined gross income from self employment and property exceeded £50,000 in the 2024/25 tax year. From April 2027, the threshold drops to £30,000.

If you fall within scope, you must:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC using compatible software
• File a final declaration after the tax year end

If you are below the threshold, you continue with annual Self Assessment for now. Either way, this is a good year to move from paper records to cloud accounting software.

Capital Gains Tax in More Detail

CGT applies on the disposal of any property that has not been your only or main home for the entire ownership period.

Key points to remember:

• The annual exempt amount is £3,000
• Residential gains are taxed at 18% (basic rate band) and 24% (higher rate)
• You must report and pay CGT on UK residential property within 60 days of completion
• Private Residence Relief covers the periods when the property was your only or main home, plus the final 9 months of ownership
• Lettings Relief is now only available where you shared the home with the tenant, for example a live in lodger
• When you gift or transfer at undervalue, the gain is calculated on market value rather than the actual proceeds

Because residential CGT can land within weeks of completion, plan for the bill before you exchange contracts.

Inheritance Tax

A rental property forms part of your estate for Inheritance Tax (IHT) purposes, whether held personally or through a limited company. The current nil rate band of £325,000 has been frozen until April 2030, alongside the residence nil rate band of up to £175,000 where a qualifying home passes to direct descendants.

Lifetime gifts more than seven years before death, gifts to a spouse or civil partner, and gifts to charity are exempt. Property is one of the more complex assets to plan for, and IHT planning works best when started years in advance.

Tenants and Tenancies

Good tenants pay on time, look after the property and treat the home as their own. Bad tenants can be expensive and stressful. The work you put in before the tenancy starts pays back later.

Choosing the Right Tenant

• Decide who you are aiming at: students, young professionals, families, corporate lets
• Make sure the property and area suit that audience
• Think about how long they are likely to stay

Where to Find Tenants

• Online portals like Rightmove and Zoopla, accessed through a letting agent
• Local letting agents who already have applicants registered
• Direct adverts where lawful and supported by your insurance
• University accommodation offices for student lets

Referencing

• Identity, Right to Rent, credit and employment checks are standard
• Use a referencing service or a regulated agent rather than skipping checks
• A guarantor can be useful for students or applicants with thin credit files
• Rent guarantee insurance gives an extra layer of protection

The Tenancy Agreement

• Choose the right format. In England, an Assured Shorthold Tenancy is most common
• Include all required statutory information
• Set out clear obligations on rent, repairs, behaviour, pets and end of tenancy
• Use a solicitor or a properly drafted template, not something pulled at random off the internet

Knowing Your Rights and Theirs

Tenancy law is changing. Stay current with rules on grounds for possession, deposit protection, How to Rent guides, smoke and carbon monoxide alarms, EPCs and minimum energy efficiency standards. Difficult tenants will know the rules, so make sure you do too.

When the Rent Stops

Rent guarantee insurance, a strong tenancy agreement and prompt action on arrears are your best protection. If you do need to seek possession, factor in court timescales and legal costs in your contingency planning.

Regulations Every Landlord Must Track

The rules tighten almost every year. The essentials to keep on top of:

• Annual Gas Safety Record from a Gas Safe registered engineer
• Five yearly Electrical Installation Condition Report (EICR)
• Smoke alarms on every floor and carbon monoxide alarms in rooms with fixed combustion appliances
• Fire safety rules, especially in HMOs and flats above commercial premises
• Energy Performance Certificate, currently with a minimum E rating, with proposed reforms moving the bar higher
• Asbestos checks in older properties
• Building regulations approval for structural changes
• Local licensing, including selective licensing schemes that vary by council

A good managing agent or a specialist landlord accountant will keep you up to date on the parts that affect your tax and compliance position.

Property Management Decisions

Once a tenant is in place, you need to know who is doing what.

• Who collects the rent and chases arrears?
• Who holds and protects the deposit?
• Who is the first point of contact for the tenant out of hours?
• Who arranges repairs, and within what time limits?
• Who pays the bills, and from which account?

Letting these questions sit unanswered until something goes wrong is the single most common mistake new landlords make.

Should You Hold Property Personally or Through a Company?

Many landlords now consider buying through a Special Purpose Vehicle (SPV) limited company because:

• Companies can still deduct mortgage interest in full
• Corporation tax of 19% (profits up to £50,000) or 25% (over £250,000) can be lower than personal higher and additional rates
• Profits can be retained inside the company and reinvested

The trade offs include:

• SDLT and CGT charges on transferring existing properties into a company
• Higher mortgage rates and arrangement fees on limited company products
• Dividend tax on extracting profit, with rates rising from April 2026
• More complex accounting and Companies House filings

There is no universal right answer. The decision depends on your other income, your portfolio size, how long you plan to hold, and whether you want the rental income now or later. This is exactly the kind of question a property tax accountant can model for you.

Final Thoughts for First Time Landlords

Property is still a serious long term investment, but the days of drifting into letting without a plan are gone. The combination of MTD, Section 24, higher SDLT surcharges, the FHL abolition and the 2027 rate increases means a casual approach now costs real money.

Choose a property in the right location for the tenants you want. Get the paperwork right before they move in. Track your income and expenses from day one. Review your structure and your tax position with an accountant at least annually.

If you would like help with planning, tax returns, bookkeeping, or with deciding whether to buy personally or through a limited company, get in touch with the Target Accounting team. We work with first time landlords and growing portfolios across the UK.