Property Management in United Kingdom: Rental Income Tax (SA105)

Property Management in United Kingdom: Rental Income Tax (SA105)

This Guide covers how UK rental income and expenses are computed and reported on the SA105 property supplementary pages for individual landlords. Figures are for tax year 2025-26 (6 April 2025 – 5 April 2026), method attested by James Power on 2026-06-03.

Who this is for

Individual landlords letting UK residential property, reporting on Schedule SA105 alongside their SA100. Does not cover furnished holiday lets under the old regime (abolished from 6 April 2025 — see below), non-resident landlords beyond the summary given here, or corporate/company-owned property, which follows separate rules.

Before you start, ask the client

• Is the property jointly owned? (Affects how income and expenses are split — confirm before computing anything.)
• Is the landlord UK resident or non-resident? (Non-resident landlords fall under a separate withholding scheme.)
• Was any repair actually a repair, or did it restore/improve the property beyond its original condition?
• Were any domestic items (furniture, appliances) replaced during the year, and was it a first purchase or a replacement?
• Is total gross rental income above or below the £1,000 property income allowance threshold?

The method, step by step

• Step 1 — Total gross rental income — Total the gross rental income for the year, including rent, retained deposits (income in the year retained, not the year collected), and platform payouts (Airbnb, Booking.com). Exclude refundable deposits still held and any capital receipts. (OpenAccountants — UK Rental SA105 skill)
• Step 2 — Categorize every expense line — Categorize every expense line: fully deductible revenue expense, repair, capital improvement, or domestic item replacement. This classification decision happens at the point of approval — not reconstructed later from a vague invoice. (OpenAccountants — UK Rental SA105 skill)
• Step 3 — Apply the mortgage interest restriction — Apply the mortgage interest restriction. For residential property, mortgage interest and other finance costs are not deductible as an expense — instead, claim a 20% tax credit on the lower of finance costs, property profit, or adjusted total income. (OpenAccountants — UK Rental SA105 skill)
• Step 4 — Compare property income allowance vs actual expenses — Compare the £1,000 property income allowance against actual expenses if gross income is low — you cannot claim both; use whichever produces the lower taxable figure. (OpenAccountants — UK Rental SA105 skill)
• Step 5 — Check Rent-a-Room relief — If letting a room in the landlord's own home, check Rent-a-Room relief (£7,500 threshold, £3,750 if letting jointly) before defaulting to the standard computation — it cannot be combined with the property income allowance. (OpenAccountants — UK Rental SA105 skill)
• Step 6 — Former FHL property — Where the property was formerly a Furnished Holiday Let, confirm any brought-forward FHL losses and capital allowances pools have been correctly carried into the standard property business computation, since the FHL regime no longer applies from 2025-26 onward. (OpenAccountants — UK Rental SA105 skill)

The traps

• Deducting mortgage interest directly as an expense instead of applying the 20% finance cost tax credit — this is one of the most common and costly errors under Section 24.
• Treating a like-for-like repair as capital, or an actual improvement as a repair — the HMRC test is whether the work restores original condition (repair) or enhances/adds value (capital, non-deductible as revenue).
• Deducting the original purchase cost of a domestic item — only the cost of a replacement qualifies for relief, and only up to the cost of an equivalent item if the replacement is itself an upgrade.
• Combining the property income allowance with actual expense deductions, or combining it with Rent-a-Room relief — only one route applies at a time.
• Treating an applied/retained security deposit as still held rather than as income in the year it was retained.

Rates, thresholds and deadlines

Rates, thresholds and deadlines (ITTOIA 2005; ITTOIA ss.784-802; ITA 2007 ss.274A-274D (Section 24); Finance Act 2025; HMRC Self Assessment; HMRC — pending full rollout detail)

What	Value	Source
Property income allowance	£1,000 (frozen since 2017-18)	ITTOIA 2005
Rent-a-Room threshold	£7,500/year (£3,750 if letting jointly)	ITTOIA ss.784-802
Mortgage interest / finance cost treatment	Not deductible as expense — 20% tax credit instead	ITA 2007 ss.274A-274D (Section 24)
FHL regime	Abolished from 6 April 2025 — treated as standard property income	Finance Act 2025
Filing deadline (online)	31 January following the tax year	HMRC Self Assessment
Filing deadline (paper)	31 October following the tax year	HMRC Self Assessment
MTD ITSA Phase 1	Mandatory from 6 April 2026 for gross income over £50,000	HMRC — pending full rollout detail

Flag for 2026-27 (not yet enacted): Autumn Budget 2025 announced a move to differential property income tax rates from 6 April 2026 (expected +2pp at basic and higher rate). This is TBC pending Royal Assent of Finance (No. 2) Bill 2024-26 — do not use for any client computation until confirmed.

Worked example

Rent £12,000. Mortgage interest £4,000. Agent fees £1,200. Insurance £300. Repairs £800. Basic rate taxpayer.

Sources

Sources

• Income Tax (Trading and Other Income) Act 2005 (ITTOIA), Part 3 - Income Tax Act 2007, ss.274A-274D (Section 24 — mortgage interest restriction) - ITTOIA ss.784-802 (Rent-a-Room relief) - Finance Act 2025 (FHL abolition) - OpenAccountants — UK Rental SA105 skill, method attested by James Power (openaccountants.com/network/30b2f478-3a97-40c4-b435-0678829b487e) This is a working paper aid, not a filed return — review and sign off before filing with HMRC.

Contributed by Nadir Khan.