Rent from a house in multiple occupation is ordinary property income, taxed as part of the landlord’s single UK property business in the same way as any other residential letting. Bills included in the rent are simply part of the rent, with the landlord deducting the utilities and council tax actually paid. The first furnishing of an HMO gets no relief, replacements usually qualify for replacement of domestic items relief, and the letting only becomes a trade if the services go well beyond what a landlord normally provides.

What counts as an HMO, and does tax law treat it differently?

GOV.UK describes a house in multiple occupation as a property rented out by at least three people who are not from one household but share facilities such as the bathroom and kitchen. A large HMO, rented to five or more people forming more than one household, needs a licence from the council, and councils can require licences for smaller ones too.

The HMO label comes from housing law, not tax law. For tax, HMO rent falls into the landlord’s UK property business under section 264 of the Income Tax (Trading and Other Income) Act 2005, pooled with any other UK lettings (PIM1020). The usual residential rules apply in full, including the restriction on finance costs. PIM2054 explains that interest on a dwelling related loan, which includes a loan to buy or adapt a dwelling house, is not deducted from profits but gives a tax reduction at the basic rate, which is 20% for 2026 to 2027. Companies are not affected. From 2027 to 2028 the relief moves to the new property basic rate; see property income tax rates from April 2027.

How is an all inclusive rent with bills taxed?

Most HMOs are let with gas, electricity, water and often broadband included. There is no need to split the rent into a rent element and a bills element. The whole amount tenants pay is a receipt of the property business, and HMRC’s guidance confirms that water rates, council tax, gas and electricity are allowable expenses where the landlord rather than the tenant pays them. Keep the utility bills, as they will often be the largest deduction after finance costs.

Supplying utilities does not change the nature of the income. HMRC’s manual at PIM4300 lists the provision of hot water and heating, and the cleaning of stairs and passages in multi unit premises, among the services normally provided by a landlord. Providing them, even on a large scale, keeps the receipts inside the property business.

Can I claim for furniture and furnishings?

Section 308 ITTOIA 2005 brings amounts received for the use of furniture into the property business (PIM1060), so a furnished HMO rent is taxed in full. Relief for the furniture itself depends on whether it is a first purchase or a replacement.

  • Initial furnishing. HMRC treats buying furnishings and equipment for a property as capital, and replacement of domestic items relief does not cover the initial cost. Furnishing a newly converted HMO, or an extra room created later, gets no income tax relief.
  • Replacements. Replacement of domestic items relief covers replacing movable furniture, furnishings, household appliances and kitchenware. PIM3210 requires the new item to be provided for the exclusive use of the lessee in the dwelling house and the old item to be no longer available to them. If the new item is an improvement, relief is limited to the cost of a like for like item, although a reasonable modern equivalent, such as a more energy efficient fridge, is not treated as an improvement.
  • Fixtures. PIM3210 excludes fixtures such as boilers, radiators and fitted wardrobes from the relief. Replacing those like for like is normally a repair to the building instead.
  • Small items. HMRC allows the cost of replacing low value items with a short life, such as cutlery, crockery, cushions and bed linen.

Can HMO landlords claim capital allowances on shared areas?

No. Section 35 of the Capital Allowances Act 2001 denies plant and machinery allowances for assets used in a dwelling house. HMRC’s Capital Allowances Manual at CA11520 states that an HMO is a dwelling house and that HMRC disagrees with claims that shared hallways, stairs, landings, attics and basements are outside it. CA23060 repeats the point. This is a real difference from a block of self contained flats, where the common parts are not a dwelling house and assets serving them, such as a communal fire alarm, can qualify. The cash basis does not get round this: PIM1095 says no deduction is allowed for capital expenditure on assets used in an ordinary residential property. More detail is in capital allowances for landlords.

When does running an HMO become a trade?

Rarely. PIM4300 summarises the case law, starting with Salisbury House Estate Ltd v Fry, where Lord MacMillan said a landowner cannot be represented as carrying on a trade of owning property because he makes an income by letting it. HMRC’s own conclusion is that although property income is now computed like trading income, letting is still not a trade.

PIM4300 sets out three possible outcomes:

  1. The whole activity is part of the property business. This is the normal HMO position. Rent collection, arranging new tenancies, arranging repairs, heating, hot water and cleaning common areas are all normal landlord services, and the guidance says doing them full time because of the size of the portfolio does not change that.
  2. A separate trade alongside the property business. Regular cleaning of rooms while they are let, a regular supply of clean linen or regular meals go beyond normal landlord services and can amount to a separate trade. The rent stays in the property business, and any single payment and the expenses must be split on a reasonable basis.
  3. The whole activity is a trade. This only happens where the owner remains in occupation and provides services over and above those of a landlord, as in a guest house or bed and breakfast. The guidance notes that a hotel guest, unlike a tenant, acquires no legal interest in the property.

A separate charge for services points towards a separate trade, but PIM4300 says it is not conclusive, particularly if tenants cannot opt out of the services and pay rent only.

What if I live in the HMO myself?

A landlord who lives in the property and lets rooms to lodgers may be able to use rent a room relief. PIM4001 explains that gross receipts of £7,500 or less from furnished accommodation in your only or main residence are exempt, halved to £3,750 if someone else also receives rent from the same residence. Gross receipts include payments for meals, cleaning and laundry, and if the scheme is used no expenses can be claimed. Where receipts are higher, you can choose to be taxed on the excess over the limit instead of the actual profit. PIM3210 adds that replacement of domestic items relief is not available for a property where rent a room relief has been claimed.

What about licensing, safety costs and VAT?

HMO and selective licence fees and the recurring gas and electrical checks are deductible running costs, while fire safety works added for the first time are capital; see landlord licensing and safety costs. Letting rooms as homes is exempt from VAT, and VAT Notice 742A confirms an option to tax has no effect on buildings designed or adapted as dwellings, so an HMO landlord cannot recover VAT on costs. Building work to convert a single household house into an HMO can, however, be a qualifying conversion for the 5% reduced rate under paragraph 7.4 of VAT Notice 708. See the reduced VAT rate for residential conversions.

How does this work for one HMO?

Illustration only. Daniel owns a five bedroom HMO in his own name and uses the cash basis. Each room is let at £600 a month including bills, so rents for the year are £36,000.

Item Amount Treatment
Gas, electricity, water, broadband and council tax £6,000 Deductible
Agent fees, insurance and repairs £5,500 Deductible
HMO licence fee paid this year £1,000 Deductible on the cash basis
Two worn out beds replaced like for like £400 Replacement of domestic items relief
Furniture for a sixth room created in the loft £1,200 Capital, no relief
Mortgage interest £8,000 Basic rate tax reduction only

His taxable profit is £23,100. He also receives a tax reduction of £1,600, which is 20% of the interest, subject to the limits in the finance cost rules. The building work to create the loft room is capital too, and its cost is kept for Capital Gains Tax.

What mistakes come up most often?

  • Claiming capital allowances on shared hallways, kitchens or fire systems in an HMO.
  • Deducting the cost of furnishing new rooms as if it were a replacement.
  • Treating the business as a trade because the landlord works full time on it or pays the bills.
  • Forgetting to apportion a single charge where genuine hotel type services, such as meals or regular room cleaning, are provided.
  • Claiming rent a room relief on a house the landlord does not live in as their main residence.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.