Rental profit
Rental profit is the taxable profit you make from letting a rental property to a tenant. In simple terms, it is your rental income minus the allowable running costs of the rental business, calculated for the relevant tax year. HMRC treats letting as a “property business”, so you’re expected to keep records and work out profits using the standard income and expense rules.
What counts as an allowable cost? HMRC guidance says you can usually deduct day-to-day expenses incurred wholly and exclusively for renting, such as letting agent fees, landlord insurance, certain utility costs you pay, and the cost of repairs and maintenance that restore something to its previous condition. However, capital improvements, including upgrades that add something new or materially improve the property are not deducted in the same way as repairs.
A common landlord trap is mortgage interest. For individuals letting residential property, finance costs are no longer deducted from rental profits in full. Instead, you get a basic-rate (20%) tax reduction on qualifying finance costs, often referred to as the “Section 24” restriction. That means your taxable rental profit can look higher than your cash profit if you have an interest only mortgage or other borrowing.
Rental profit is also shaped by compliance and standards costs. If property condition issues lead to local housing authority action, for example an improvement notice, you may face unplanned spend and void periods, which can wipe out profit quickly.
From 1 May 2026 in England, the Renters’ Rights Act changes the operating backdrop: most tenancies become open-ended periodic tenancy arrangements, Section 21 notice is abolished, and rent increases are standardised through Section 13 notice with limits including once per year and longer notice. All of that affects how predictably you can manage income and risk, so landlords tend to treat repairs, arrears management and documentation as profit protection, not admin.
Also see our landlord blog articles including:
Also see our free landlord calculators, including:
