Accounting for landlords: Tax, record-keeping, and allowable expenses

Published Friday 21 August 2026

Table of contents

• What does accounting for landlords involve?
• What tax do landlords pay on rental income?
• What are allowable expenses for landlords?
• How to keep financial records as a landlord
• What is Making Tax Digital for landlords?
• Common landlord accounting mistakes to avoid
• Simplify your landlord accounting with Xero
• FAQs on accounting for landlords

Key takeaways

• UK landlords must report rental income to HMRC through Self Assessment and pay income tax on their rental profit after deducting allowable expenses.
• Allowable expenses include letting agent fees, repairs, insurance, and professional fees, but not property improvements or mortgage capital repayments.
• Mortgage interest is no longer deductible as an expense; instead, you receive a 20% tax credit on your interest payments.
• From April 2026, landlords with qualifying income over £50,000 are now required to keep digital records and submit quarterly updates to HMRC under Making Tax Digital for Income Tax.

What does accounting for landlords involve?

Accounting for landlords means tracking your rental income, recording your expenses, keeping proper financial records, and meeting your tax obligations to HMRC. Whether you let a single property or manage a growing portfolio, these responsibilities apply to you.

Getting your accounting right matters for several reasons. It helps you:

• pay the correct amount of tax, and no more than you owe
• claim every allowable expense you're entitled to
• stay compliant with HMRC's record-keeping requirements and new Making Tax Digital (MTD) for Income Tax rules

You don't need to be an accountant to manage this well. With a clear understanding of what's expected and a simple system for organising your finances, you can stay on top of your obligations and keep more of your rental income.

What tax do landlords pay on rental income?

As a UK landlord, you pay income tax on your rental profit. This is the amount left after you deduct your allowable expenses from your rental income. Your rental profit is then added to any other income you earn, and the total determines which tax band you fall into.

How rental profit is calculated

Your rental profit is straightforward to work out. Take your total rental income for the tax year, then subtract your allowable expenses. The result is your taxable rental profit.

UK income tax rates for the 2026/27 tax year are:

• Basic rate: 20% on income from £12,571 to £50,270
• Higher rate: 40% on income from £50,271 to £125,140
• Additional rate: 45% on income above £125,140

The personal allowance for 2026/27 is £12,570. This means you can earn up to £12,570 across all income sources before you start paying tax. If your total income exceeds £100,000, your personal allowance reduces by £1 for every £2 above that threshold.

Consider a worked example. Say you receive £18,000 in rent during the tax year and have £6,000 in allowable expenses. Your rental profit is £12,000.

If you also earn £30,000 from employment, your total income is £42,000. After subtracting your £12,570 personal allowance, you'd pay 20% tax on £29,430, which comes to £5,886.

How to report rental income through Self Assessment

You report your rental income to HMRC through the Self Assessment system. The process involves four steps.

1. Register for Self Assessment with HMRC if you haven't already. You need to do this by 5 October following the end of the tax year in which you first received rental income.
2. Complete your Self Assessment tax return each year, including the SA105 property income supplement. This is where you record your rental income and expenses.
3. Submit your return by the deadline. For online returns, the deadline is 31 January following the end of the tax year. For paper returns, it's 31 October.
4. Pay any tax owed by 31 January. If your tax bill exceeds £1,000, HMRC may also require payments on account, which are advance payments towards your next year's bill.

The UK tax year runs from 6 April to 5 April the following year. So for the 2026/27 tax year (6 April 2026 to 5 April 2027), your online return is due by 31 January 2028.

What are allowable expenses for landlords?

Allowable expenses are the costs you can deduct from your rental income before calculating your tax bill. Claiming everything you're entitled to reduces your rental profit and, in turn, the amount of tax you pay. Missing legitimate claims means paying more than you need to.

Expenses you can claim

HMRC allows you to deduct a range of expenses that are incurred wholly and exclusively for the purpose of letting your property. The most common allowable expenses include:

• letting agent and property management fees.
• repairs and maintenance costs, such as fixing a leaking roof or repainting walls.
• landlord insurance, including buildings, contents, and public liability cover.
• professional fees paid to accountants, solicitors, or surveyors for letting-related work.
• ground rent and service charges on leasehold properties.
• utility bills, where you as the landlord are responsible for paying them.
• council tax during void periods when the property is empty between tenancies.
• advertising costs for finding new tenants.
• travel expenses for property management visits, calculated at HMRC's approved mileage rate or actual costs.
• stationery, phone calls, and postage related to managing your lettings.

Mortgage interest: how the tax credit works

If you have a mortgage on your rental property, you can no longer deduct the interest as an expense. From April 2020, mortgage interest for residential landlords is handled through a tax credit system instead.

You receive a tax credit worth 20% of your mortgage interest payments. This credit is applied against your tax bill after your income tax has been calculated, rather than reducing your taxable rental profit directly. The distinction matters most for higher-rate and additional-rate taxpayers.

To illustrate, suppose your rental profit before mortgage interest is £20,000, and you pay £5,000 in mortgage interest during the year. Your taxable rental profit remains £20,000.

If you're a higher-rate taxpayer, you'd pay 40% tax on that £20,000, which is £8,000. You then receive a 20% tax credit on the £5,000 interest, which is £1,000. Your final tax bill on the rental income is £7,000.

Under the old system, you would have deducted the £5,000 from your profit first, paying 40% on £15,000 (£6,000). So the current system costs higher-rate taxpayers more than the previous arrangement did.

Replacement of domestic items relief

The old wear-and-tear allowance for furnished residential properties was abolished in April 2016. It was replaced by the replacement of domestic items relief, which applies to all residential landlords who replace furnishings, appliances, or kitchenware in their properties.

You can claim the cost of replacing an item, minus any amount you receive for the old one. The replacement must be a like-for-like or nearest modern equivalent. For example, if you replace a broken washing machine that cost £200 with a new one costing £350, and you sell the old one for £20, your deduction is £330 (£350 minus £20).

This relief covers items such as moveable furniture, televisions, fridges, carpets, curtains, crockery, and bed linen. It doesn’t cover fixtures that are part of the building's structure, such as fitted kitchens or built-in wardrobes.

Capital vs revenue expenditure

One of the trickiest parts of landlord accounting is distinguishing between repairs and improvements. The difference determines whether you can deduct the cost.

Repairs restore a property or item to its previous condition. They are revenue expenditure and fully deductible. Improvements enhance a property beyond its original state. They are capital expenditure and not deductible from your rental income, though they may reduce your capital gains tax bill if you sell the property later.

Some examples make this clearer:

• Fixing a broken boiler is a repair – upgrading from a standard boiler to a smart heating system is an improvement.
• Replacing damaged roof tiles with the same type is a repair – adding a loft conversion is an improvement.
• Repainting walls in a similar colour is a repair – knocking through walls to create an open-plan layout is an improvement.

The general rule is like-for-like replacement. If you're replacing something with the nearest modern equivalent, that's normally a repair. If you're adding something new or substantially better, it's likely an improvement.

How to keep financial records as a landlord

Good record-keeping is not just good practice; it's a legal requirement. HMRC expects you to keep accurate records of your rental income and expenses, and you may be asked to produce them during an enquiry.

What records HMRC requires

You need to keep records that support every figure on your tax return. For landlords managing rental properties, this means holding onto:

• records of all rent received, including dates and amounts
• receipts and invoices for every expense you claim
• bank and building society statements for accounts used in your letting business
• mortgage statements showing interest paid during the year
• tenancy agreements, including tenant details and rental terms
• records of any property purchases, sales, or major works

How long to keep records

HMRC requires you to keep your records for at least five years after the 31 January submission deadline for the relevant tax year. So for the 2026/27 tax year (return due 31 January 2028), you'd need to keep records until at least 31 January 2033.

If you're likely to sell the property in the future, keep records for longer. You'll need purchase costs, improvement receipts, and sale details to calculate your capital gains tax liability.

Tips for organising your records

Staying organised throughout the year makes your tax return far simpler. These four steps will help you build a straightforward system.

• Open a separate bank account for your rental income and expenses. This keeps your personal and property finances apart and makes reconciliation much easier.
• Store receipts digitally. Photograph or scan paper receipts as soon as you get them, then file them in clearly labelled folders by tax year and category.
• Reconcile your records regularly, ideally monthly. Compare your bank statements against your recorded income and expenses to catch errors or missing items early.
• Use consistent expense categories that match HMRC's allowable expense headings. This saves time when you complete your return and reduces the chance of missing a claim.

What is Making Tax Digital for landlords?

Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is an HMRC initiative that changes how landlords and self-employed individuals report their income. Instead of filing a single annual tax return, you'll need to keep digital records and send quarterly updates to HMRC using compatible software.

MTD ITSA timeline and thresholds

MTD for Income Tax is being introduced in phases based on your income level. The timeline is:

• From April 2026: landlords with combined property and self-employment income above £50,000 must comply – this is now in effect.
• From April 2027: the threshold drops to those with combined income above £30,000.
• From April 2028: the threshold drops further to those with combined income above £20,000.

The threshold is based on your gross income before expenses, not your profit. If you have both rental income and self-employment income, these are added together to determine whether you meet the threshold.

What MTD ITSA requires

Under MTD for Income Tax, you'll need to do the following:

• Keep your financial records digitally using MTD-compatible software.
• Submit quarterly updates to HMRC summarising your income and expenses for each three-month period.
• Provide an end-of-period statement after the final quarter, confirming your figures for the full tax year.
• Submit a final declaration, which replaces the current Self Assessment tax return, confirming your total income and claims for the year.

How to prepare for MTD

Even if your income is below the current threshold, preparing early puts you in a stronger position. Taking these steps now will make the transition smoother.

1. Check whether your combined property and self-employment income exceeds £50,000. If it does, you'll need to be ready by April 2026.
2. Choose MTD-compatible software. HMRC maintains a list of approved options, and selecting one early gives you time to learn how it works.
3. Start keeping your records digitally now. Moving from paper-based systems to digital record-keeping before the deadline reduces the risk of errors during the transition.
4. Review your current processes. Identify any gaps in how you track income and expenses, and address them before quarterly reporting begins.

Common landlord accounting mistakes to avoid

Even experienced landlords can make costly errors with their accounting. Here are some of the most common pitfalls and how to steer clear of them.

• Mixing personal and rental finances. Using one bank account for everything makes it harder to track expenses accurately and increases the risk of errors on your tax return.
• Claiming improvements as repairs. HMRC distinguishes between the two, and claiming an improvement as a repair could trigger an enquiry and a potential penalty.
• Forgetting to claim all allowable expenses. Many landlords miss smaller costs like travel, phone calls, or stationery. Over time, these add up.
• Missing the Self Assessment deadline. Filing late attracts an automatic £100 penalty, even if you owe no tax. Further delays lead to additional fines and interest.
• Misunderstanding the mortgage interest tax credit. Some landlords still try to deduct mortgage interest as an expense. It's a 20% tax credit, not a deduction, and getting this wrong on your return causes problems.
• Not keeping records long enough. Destroying records before the five-year minimum leaves you unable to support your figures if HMRC enquires.
• Ignoring MTD preparation. If your income is above the £30,000 threshold, April 2027 is closer than it seems – and for those with income above £50,000, you should already be complying. Leaving preparation to the last minute creates unnecessary stress and risk of non-compliance.

Simplify your landlord accounting with Xero

Keeping on top of your landlord accounting doesn't have to be complicated. Xero's cloud accounting software helps you track rental income, categorise expenses, store receipts digitally with Hubdoc, and reconcile your bank transactions in one place.

Whether you're managing a single let or a growing portfolio, Xero helps give you a clearer view of your finances and helps you stay ready for Self Assessment and MTD for Income Tax. You can read more in Xero's landlord tax guide.

Try Xero for your rental properties and get one month free.

FAQs on accounting for landlords

Here are answers to common questions about managing your finances as a UK landlord.

Do I need an accountant as a landlord?

You're not legally required to use an accountant. Many landlords with one or two properties manage their own accounting successfully using software and HMRC's guidance. However, if you have a large portfolio, complex tax affairs, or limited time, an accountant can help you claim the right expenses and avoid costly mistakes.

Can I do my own landlord accounting?

Yes. If you keep accurate records of your income and expenses throughout the year, you can complete your Self Assessment return yourself. Using accounting software that supports MTD makes the process simpler and reduces the chance of errors.

What happens if I don't declare rental income?

HMRC can charge penalties of up to 100% of the tax owed, plus interest on late payments. In serious cases, they may open a formal investigation. HMRC's Let Property Campaign gives landlords a chance to voluntarily disclose unpaid tax with lower penalties than if HMRC discovers the underpayment themselves.

Is landlord insurance an allowable expense?

Yes, but only the portion that relates directly to your rental property. Buildings insurance, contents insurance, and landlord liability cover are all deductible. If your policy also covers a property you live in, you can only claim the part attributable to the let property.

Do I need to register for Self Assessment as a landlord?

Usually, yes. If your gross rental income exceeds £1,000, you'll need to register for Self Assessment by 5 October following the end of the tax year in which you first earned rental income. If your gross rental income is £1,000 or less in a tax year, it's covered by the property allowance and you don't need to register or file a return.