Can I rent my property to my family for a low rent?

Yes, you're free to charge family whatever you like. But if the rent is below the open-market level, HMRC treats it as an 'uncommercial let' and restricts the expenses you can claim against that income.

Why can't I claim a loss on a family let?

Expenses are only deductible if incurred wholly and exclusively for the rental business. HMRC considers a below-market let to be partly for a benevolent purpose, so the costs fail that test to the extent they exceed the rent — preventing a loss that would shelter your other income.

Am I taxed on the market rent or the rent I actually charge?

For income tax you're taxed on the rent you actually receive, not a notional market rent. The restriction bites on the expenses side, not the income side. (Capital gains and inheritance tax follow different, market-value-based rules.)

What if I charge a full market rent to family?

Then it's a normal commercial let. You can deduct allowable expenses in full and create or use a loss in the usual way, just as with any unconnected tenant. The key is genuine market rent and normal lease terms.

Does letting to family affect capital gains tax later?

It can. If you later sell or gift the property to that family member at an undervalue, the connected-persons rules use market value for CGT, regardless of the price — a separate issue from the income-tax expense cap.

Renting to a Family Member Below Market Rent: The Tax Trap

Q: How does the uncommercial-let rule work?

Your allowable expenses on that property are capped at the rent you receive. The let can therefore show neither a profit nor a loss, and any expenses above the rent are not carried forward to future years — they're simply lost.

Last updated 29 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team

The short answer

You can charge family whatever rent you like — but if it’s below market value, HMRC calls it an uncommercial let and caps your deductible expenses at the rent received. The result: the property can show no loss, and any expenses above the rent are not carried forward — they vanish. The generosity is fine; just don’t expect the taxman to subsidise it.

Helping a son, daughter or elderly parent with a cheap roof over their head is one of the most common things landlords do. It’s also one of the most misunderstood from a tax angle. People assume the running costs — mortgage interest, repairs, insurance — work the same as on any rental. They don’t. The moment the rent slips below a commercial level, a specific rule in HMRC’s Property Income Manual quietly changes the maths.

This guide explains the uncommercial-let rule, why it exists, exactly what you can and can’t claim, and how to keep things clean. It pairs with our piece on selling a property below market value to family, which covers the very different capital-gains side of the same relationship.

Free calculator · no sign-up

Rental Profit Estimator

Work out the profit on a let — remember an uncommercial family let is capped at break-even.

Annual rental income

Allowable expenses

Mortgage interest

Your tax band

Result

Taxable profit (rent − expenses): £11,200
Income Tax at 40%: £4,480
Less mortgage interest credit (20%): − £1,000
Tax due on this property: £3,480
Income after tax: £7,720

Below-market family lets: expenses limited to rent received, no loss, excess not carried forward. Estimate only — not personal advice.

Where the rule comes from

A rental expense is only deductible if it’s incurred “wholly and exclusively” for the property business. That phrase is the whole game. When you let to a stranger at full market rent, every sensible cost is plainly for business — you’re maximising your return. When you let to your daughter for half the going rate, HMRC’s view is that part of your motivation is benevolent, not commercial.

Because the costs are then incurred partly for a non-business purpose, they fail the wholly-and-exclusively test to the extent they exceed the rent. HMRC’s long-standing practice (set out in its Property Income Manual) is pragmatic: it lets you deduct expenses up to the rent received, so the let is taxed at break-even, but no further.

What the cap means in practice

No taxable profit on that property — expenses soak up the rent, leaving nothing to tax.
No loss either — you can’t use surplus costs to reduce profits on your other rentals or income.
No carry-forward — expenses above the rent are lost permanently, not banked for a future year.
Capital allowances on plant and machinery go into a separate pool and are reduced on a “just and reasonable” basis to reflect the non-commercial use.

A subtle but important point: you’re still taxed on the actual rent you receive, not a notional market rent. The penalty is purely that your expenses can’t take you below zero. Income tax does not invent rent you never charged.

The mortgage-interest sting

If the cheap let is also mortgaged, the trap deepens. Mortgage interest already only gives a 20% tax credit under Section 24 rather than a full deduction. On an uncommercial let, the finance-cost relief is restricted in line with the rent too — so a heavily-discounted rent on a mortgaged property can mean you’re effectively financing your family member out of taxed income with little relief. It’s often the single biggest reason a family arrangement costs more than expected.

Keep family lets clean and recorded

LandlordTaxAi tracks rent and expenses per property — so an uncommercial family let is reported correctly and never accidentally creates a loss you’re not entitled to.

See how it works

A worked example

Raj lets a flat to his son for £6,000 a year. The market rent would be £14,000. His genuine running costs (interest, insurance, repairs, agent) total £9,000.

Rent received	£6,000
Actual costs	£9,000
“Real” result	£3,000 loss
Expenses HMRC allows	Capped at £6,000
Taxable profit / loss	£0 (not a £3,000 loss)
The extra £3,000 of costs	Lost — not carried forward

Raj can’t use the £3,000 against his other rental profits, and he can’t bank it for next year. Had he let to his son at the full £14,000 commercial rent, all £9,000 of costs would be deductible and the property would behave like any normal let.

How to stay on the right side of it

If you want full expense relief, charge a genuine market rent with normal lease terms — a discount “because it’s family” is exactly what the rule targets.
If you’re happy to help and accept the cap, that’s a perfectly legitimate choice — just report it as break-even and don’t claim a loss.
Keep a note of the market rent (a couple of comparable listings is enough) so your position is evidenced if HMRC ever asks.
Remember the income-tax cap is separate from the capital-gains and inheritance-tax consequences if you later transfer the property — those use market value.

Frequently asked questions

Can I rent to family for a low rent?

Yes — you can charge what you like. But below market rent makes it an “uncommercial let”, which restricts the expenses you can claim against that income.

How does the uncommercial-let rule work?

Expenses are capped at the rent received, so the let shows neither profit nor loss, and anything above the rent isn’t carried forward.

Why can’t I claim a loss?

Expenses must be wholly and exclusively for the business. A below-market let is treated as partly benevolent, so excess costs fail that test and can’t create a loss.

Am I taxed on market rent or actual rent?

For income tax, on the rent you actually receive — the restriction bites on expenses, not income. CGT and IHT are different and use market value.

What if I charge family a full market rent?

Then it’s an ordinary commercial let — full expense relief and normal loss rules apply, just as with any unconnected tenant.

Does it affect CGT later?

Potentially. Selling or gifting to that family member at an undervalue triggers the connected-persons market-value rule for CGT — a separate issue from the expense cap.

Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.

Last reviewed: 29 June 2026 · Researched against primary UK sources for the 2026/27 tax year: https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2130 (properties not let at a commercial rent); https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income; https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1020. This article is informational only and does not constitute tax advice. Check the latest details on GOV.UK or with a qualified accountant.