Landlord Tax Calculator UK: Making Tax Digital and Replacement of Domestic Items Relief

Working out your landlord tax liability involves several layers: gross income, allowable deductions, the Section 24 restriction on finance costs, and the Self-Assessment or Making Tax Digital filing requirement. Getting the calculation right — particularly the deductions you can and cannot claim — directly affects the cash your portfolio generates. Here is the current framework for 2026.

How Rental Income Is Taxed

Rental income is added to your other income for the year. The total is taxed at your marginal rate: 20% (basic rate), 40% (higher rate), or 45% (additional rate).

What you can deduct before calculating tax:

• Letting agent and management fees
• Buildings insurance and public liability insurance
• General repairs and maintenance (not improvements — see below)
• Ground rent and service charges on leasehold properties
• Accountancy and legal fees directly related to the let
• Utility bills paid by you as landlord

What you cannot deduct directly (due to Section 24):

• Mortgage interest — replaced by a 20% flat tax credit on the interest amount (see our Section 24 guide for the worked impact)

The repairs vs. improvements distinction. Repair costs — fixing a broken boiler, repointing brickwork, replacing broken windows — are fully deductible as revenue expenses. Improvements — converting a loft, extending a kitchen, replacing a dated boiler with a more efficient system that also improves the property — are capital expenditure. Capital expenditure is not deductible against rental income. It may reduce your Capital Gains Tax liability when you eventually sell the property (by increasing your acquisition cost), but it does not reduce your income tax bill in the year it is spent.

Replacement of Domestic Items Relief

Prior to April 2016, landlords of furnished properties could claim a flat 10% "wear and tear" allowance each year, regardless of actual expenditure on furnishings. This was abolished and replaced with the Replacement of Domestic Items Relief (RDIR), which is considerably more restrictive.

RDIR allows you to deduct the cost of replacing movable items provided for tenant use. This includes:

• Furniture: beds, sofas, wardrobes, tables, chairs
• Appliances: washing machines, refrigerators, dishwashers, televisions
• Soft furnishings: carpets, curtains, blinds

The key restrictions that most landlords get wrong:

1. Replacements only — not initial purchases. If you are furnishing an empty property for the first time, none of those costs qualify for RDIR. The relief applies strictly to replacing items that already existed. The initial capital cost of furnishing an empty property is not deductible as revenue expenditure.

2. Like-for-like only. You can only claim the cost of a modern equivalent of what was replaced. If the old washing machine was a basic 7kg model and you replace it with a premium 10kg washer-dryer, you can only claim the cost of a standard 7kg equivalent. The additional cost for the upgrade is not deductible.

3. Net of proceeds. If you sell the old item (even for a small sum), you must deduct those proceeds from the replacement cost before claiming RDIR. If you give it away, no adjustment is needed.

4. Incidental costs are included. The cost of delivery, installation, and disposal of the old item can be included in the RDIR claim.

5. Unfurnished properties. RDIR only applies where items are provided for tenant use. An unfurnished property with no landlord-supplied contents cannot generate RDIR claims.

Using a Landlord Tax Calculator

A landlord tax calculator takes your gross rent, allowable deductions, and mortgage interest figure, applies the Section 24 rules, and outputs your estimated income tax bill. HMRC provides a basic rental income calculator on GOV.UK.

For a more detailed calculation that includes the Section 24 impact, you need:

• Gross annual rent
• Allowable revenue expenses (agent fees, insurance, repairs, etc.)
• Mortgage interest for the year
• Your marginal income tax rate
• Any other income sources that affect which tax band your rental income falls into

The Section 24 calculation: your taxable income is (gross rent - allowable expenses), not (gross rent - allowable expenses - mortgage interest). You then apply your marginal rate to that figure, and subtract a flat 20% credit based on the mortgage interest amount.

For higher-rate taxpayers, even a basic three-property portfolio can produce a result where the tax owed is a significant percentage of actual economic profit. This is the primary driver behind the migration to limited company structures — the calculation is identical but uses Corporation Tax rather than Income Tax, and mortgage interest remains fully deductible.

Making Tax Digital for Landlords

Making Tax Digital (MTD) is HMRC's initiative to move all tax reporting to digital records and quarterly submissions through approved software. For landlords, the relevant programme is MTD for Income Tax Self-Assessment (MTD ITSA).

The rollout for landlords is phased:

• From April 2026: Mandatory for landlords with combined gross property and trading income above £50,000 per year.
• From April 2027: Extended to those with income above £30,000 per year.
• From April 2028: Expected to extend to income above £20,000 per year.

Under MTD ITSA, you must:

1. Keep digital records of all income and expenses using HMRC-approved software (accounting packages like Xero, QuickBooks, FreeAgent, or dedicated landlord software).
2. Submit quarterly updates to HMRC (four times per year, not once annually).
3. Submit a final declaration at year end, confirming the figures and including any adjustments.

The quarterly updates are not tax returns — they do not require payment. They are cumulative totals of income and expenses submitted so HMRC has an in-year view of your position.

What this means in practice. If your rental income exceeds £50,000 per year (including gross rent, before any expenses), you are already required to operate under MTD ITSA from April 2026. You need compatible software, and you need to start keeping digital records rather than annual spreadsheets.

Below the threshold, self-assessment via the annual tax return continues as before. However, most landlords with expanding portfolios will cross the threshold eventually. Starting digital record-keeping now — even if not yet mandatory — reduces the administrative friction of the forced transition.

The additional compliance layer of MTD is another factor driving landlords toward professional accounting relationships. At £100 to £300 per hour, an accountant for MTD filing and quarterly reviews is an operational cost. It also qualifies as an allowable deduction against rental income.

Tax on Limited Company Rental Income

If you operate through a limited company, the tax calculation is entirely different. The company pays Corporation Tax on net profits (19% small profits rate up to £50,000; 25% main rate above £250,000). All mortgage interest is deductible as a business expense before calculating the tax. RDIR and other expense deductions work the same way.

MTD does not currently apply to limited companies operating as property businesses in the same way as it applies to individuals — though HMRC has indicated that digital record-keeping requirements for corporations will evolve over the coming years.

For the full tax structuring analysis — Section 24 impact, limited company decision, SDLT on acquisition, and CGT on disposal — the England Property Investment Guide provides the decision frameworks and worked calculations.

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