A Guide To Landlord Tax: Rates, Relief, and Changes 2025/26

Understanding the nuances of landlord tax is essential for UK property investors looking to optimise their rental income and stay ahead of regulatory changes. With significant tax reforms announced in the Autumn Budget 2025—including a 2% increase to property income tax rates from April 2027—the landscape is shifting dramatically.

The 2025/26 tax year brings important updates landlords need to know about, from extended threshold freezes to the upcoming rollout of Making Tax Digital (MTD). But the biggest changes are still ahead: from April 2027, rental income will be taxed at separate, higher rates than other income.

This comprehensive guide covers current tax rates, recent changes already in effect, and crucial upcoming reforms. We'll also show you how Landlord Studio can help you navigate these changes, maintain compliance, and prepare for the new tax landscape ahead.

Understanding Landlord Tax

Starting with the basics—you pay landlord tax on any rental income you receive. The amount depends on your earnings and the tax rates that apply to your income level.

For the 2025/26 tax year, these tax brackets remain unchanged from 2024/25. However, the government has extended the freeze on personal tax thresholds until April 2031 (previously set to end in 2028), which means 'fiscal drag' will continue to push more landlords into higher tax bands as rental income increases.

The main tax bands for the 2025/26 tax year are:

• Personal Allowance: £12,570 (no tax is paid on any income before this threshold)
• Basic Tax Rate: 20% on any income between £12,571 and £50,270
• Higher Tax Rate: 40% on any income between £50,271 and £125,140
• Additional Tax Rate: 45% on any income over £125,140

Important: These rates apply to rental income for the 2025/26 tax year. However, from April 2027, property income will be taxed at separate, higher rates (see "Major Changes Ahead" section below).

Related: A Landlords Guide to Tax on Rental Income

Major Changes Ahead: Autumn Budget 2025

The Autumn Budget 2025 introduced significant changes that will reshape how rental income is taxed. While these don't affect the current 2025/26 tax year, landlords need to understand and prepare for what's coming.

Property Income Tax Rates Increasing from April 2027

The most significant change for individual landlords is a 2% increase across all property income tax bands from 6 April 2027. This means rental income will be taxed at separate, higher rates than employment income:

New Property Income Tax Rates (from April 2027):

Key Points:

• These rates will apply to landlords in England, Wales, and Northern Ireland
• Scotland will set its own property income tax rates under devolved powers
• Employment income and pensions will continue to be taxed at standard rates (20%/40%/45%)
• This change works alongside existing Section 24 mortgage interest restrictions

What This Means for You:

If you're a higher-rate taxpayer earning £60,000 from rental income, you'll pay an additional £1,200 in tax per year from April 2027. For landlords with leveraged properties already affected by Section 24 restrictions, this represents another significant hit to profitability.

Income Tax Threshold Freeze Extended to 2031

The government has extended the freeze on income tax thresholds from 2028 to April 2031. This "stealth tax" means more landlords will be dragged into higher tax brackets as rental income increases with inflation, without any change in real-term earnings.

With average rents continuing to rise, this fiscal drag effect will push thousands more landlords into the 40% and 45% tax brackets over the coming years—and from 2027, they'll face even higher rates on their rental income.

High Value Council Tax Surcharge from April 2028

A new annual charge will be introduced for high-value properties from April 2028:

• £2,500 per year for residential properties valued over £2 million
• £7,500 per year for properties valued over £5 million
• Applies to properties in England
• Paid by property owners, not occupiers
• Affects less than 1% of property owners

While this "mansion tax" impacts only a small segment of the market, it represents another cost for landlords with premium properties, particularly in London and the South East.

Dividend and Savings Income Tax Changes

The same approach applies to other forms of passive income:

Dividend Tax Rates (from April 2026):

• Basic rate: 10.75% (up from 8.75%)
• Higher rate: 35.75% (up from 33.75%)
• Additional rate: 39.35% (unchanged)

Savings Income Tax Rates (from April 2027):

• Will increase by 2 percentage points across all bands (22%/42%/47%), matching property income rates

Recent Tax Changes Already In Effect

Additional tax changes landlords need to be aware of from the 2024/25 tax year that have now been fully implemented, include:

Stamp Duty Land Tax Changes (October 2024 - April 2025)

Two major SDLT changes have already impacted landlords:

1. Higher Rate Surcharge Increased (30 October 2024)

The additional dwelling surcharge increased from 3% to 5% on all property purchases completed after 30 October 2024.

Example: For a £300,000 rental property purchase:

• Old calculation (before 30 Oct 2024): £15,000 SDLT
• New calculation (from 30 Oct 2024): £21,000 SDLT
• Additional cost: £6,000

2. Residential Nil-Rate Threshold Reduced (1 April 2025)

The temporary increase to the nil-rate threshold expired, reverting from £250,000 to £125,000.

Impact: A purchase that would have incurred £7,500 SDLT under the higher threshold now costs £9,000—an extra £1,500 in tax.

These changes significantly increase the upfront costs of property investment and will impact portfolio expansion decisions.

Learn more: Stamp Duty for Buy-to-Let Properties

2024 Capital Gains Tax Changes

The Autumn Budget 2024 aligned CGT rates across all asset types from 30 October 2024:

Current CGT Rates for 2025/26:

*Will increase to 18% from 6 April 2026

Key Details:

• Annual CGT Allowance: £3,000 for 2025/26 (unchanged)
• 60-Day Reporting Rule: You must report and pay CGT within 60 days of completing the sale of a UK residential property
• Previously: Non-property assets were taxed at 10%/20%—they're now aligned with property rates at 18%/24%

This alignment means selling shares or other investments now triggers the same CGT rates as property sales, removing the previous advantage for non-property assets.

Related: About Capital Gains Tax on Investment Property in the UK

Making Tax Digital (MTD): Countdown to 2026

The biggest operational change coming for landlords is the phased introduction of Making Tax Digital for Income Tax from April 2026.

MTD Timeline and Thresholds

Making Tax Digital will be introduced in stages based on income levels:

• April 2026: Mandatory for landlords with combined property and self-employment income over £50,000
• April 2027: Extended to those with income over £30,000
• April 2028: Further extended to those with income over £20,000

Note: Income thresholds are based on gross income (before expenses), not profit. Joint property owners split income for threshold purposes.

What MTD Requires

Once MTD applies to you, you'll need to:

1. Keep digital records of all income and expenses using MTD-compatible software
2. Submit quarterly updates to HMRC (every 3 months) summarising your income and expenses
3. Submit a final declaration by 31 January following the tax year, replacing the current Self Assessment return

Quarterly Update Deadlines (from April 2026):

• 5 August (for April-June)
• 5 November (for July-September)
• 5 February (for October-December)
• 5 May (for January-March)

Getting Ready for MTD

Landlords should start preparing now:

• Transition to digital bookkeeping if you're still using spreadsheets or paper records
• Choose MTD-compatible software well before your mandation date
• Practice keeping digital records and generating reports
• Consider joining HMRC's voluntary pilot programme to test the system

Landlord Studio is fully MTD-compliant and will be directly integrated with HMRC ahead of the April 2026 deadline, making it simple to submit your quarterly updates and final declarations.

Related: Making Tax Digital for Landlords: The Complete Guide

Staying Ahead of Landlord Tax Changes with Software

Landlord Studio's accounting features help property owners record income and expenses; an important tool for investors who own several properties. These features automate large parts of record keeping by utilising bank feeds and receipt scanning technologies. This not only saves precious time but removes the possibility of human error leading to a miscalculation. This, in turn, ensures your compliance with regulations. 

Related: 6 Best Free MTD Software For Landlords

Tax Reliefs Available to Landlords

Several tax reliefs remain to help reduce your landlord tax bill. These include:

• Mortgage Interest Tax Relief: Landlords can no longer deduct mortgage interest from rental income but can claim a 20% tax credit on interest payments. This system replaced full interest relief in 2020 and is unchanged for the 2024/25 tax year. Learn more.
  
  • Important Update: From April 2027, when property income tax rates increase, this tax credit will be calculated at the new basic rate of 22% (instead of 20%). While this provides slightly more relief, it doesn't offset the impact of the 2% rate increase on your rental income.
• Replacement of Domestic Items Relief: If you replace furnishings or domestic appliances in a rental property - such as carpets or white goods - you can claim relief on these costs. Learn more.
  
  • Important: This applies only to replacements, not initial purchases when first furnishing a property.
• Capital Gains Tax Relief: When you sell the property, if it was your main residence at any point, you may be entitled to one of the following tax reliefs:
  
  • Private Residence Relief: Reduces or eliminates CGT if the property was your main home at any point
  • Lettings Relief: May provide partial relief if you lived in the property while letting it out
  • Final Period Exemption: The last 9 months of ownership are always exempt if the property was ever your main home

Landlord Studio's customisable financial reports allow you to accurately track deductible expenses. This ensures that no stone goes unturned, and you receive all the reliefs you are entitled to. 

Common Mistakes Landlords Make

Tax compliance errors can result in penalties and HMRC scrutiny. Here are the most common mistakes to avoid:

Missing the Self-Assessment Deadline

Filing your tax return late can result in immediate penalties starting at £100, with further charges accruing the longer you delay. With MTD introducing quarterly submissions from 2026, staying on top of deadlines becomes even more critical.

Solution: Use Landlord Studio's deadline reminders and automated reporting features to stay ahead of submission dates.

Overlooking Allowable Expenses

Many landlords fail to claim all their allowable expenses, unnecessarily inflating their tax bills. Common overlooked expenses include:

• Professional fees (accountant, legal, surveyor)
• Property insurance
• Repairs and maintenance (not improvements)
• Travel costs for property management
• Landlord licence fees and compliance costs

Related: Top 5 Allowable Expenses Missed By Landlords

Incorrectly Categorising Income and Expenses

Misclassifying capital improvements as repairs, or mixing personal and rental expenses, can lead to incorrect tax calculations and potential HMRC investigations.

Solution: Landlord Studio's default expense categories align with HMRC requirements, making it easy to categorise transactions correctly from the start.

Not Preparing for MTD

With MTD mandation beginning in April 2026, landlords who haven't transitioned to digital record-keeping will face a steep learning curve and potential compliance issues.

Solution: Start using MTD-compatible software now. Landlord Studio provides bank feed integration, receipt scanning, and automated categorisation to make digital record-keeping effortless.

Underestimating the Impact of 2027 Tax Changes

Many landlords haven't yet modelled how the 2% property income tax increase will affect their rental yields. Combined with existing Section 24 restrictions, these changes could make some leveraged properties unprofitable.

Solution: Use Landlord Studio's reporting features to model different scenarios and understand your tax position under the new rates. Consider seeking professional advice if you have complex portfolios or highly leveraged properties.

Preparing for Landlord Tax Changes 2025-2028

With major changes ahead, now is the time to prepare. Here's what landlords should be doing:

For 2026: Get MTD Ready

• Digitise your records: Move to MTD-compatible software like Landlord Studio
• Connect bank feeds: Automate income and expense tracking
• Practice quarterly reporting: Generate reports every 3 months to get used to the rhythm
• Join the pilot: Consider joining HMRC's voluntary MTD testing programme

For 2027: Model the Tax Impact

• Calculate your new tax bill: Work out what you'll pay under 22%/42%/47% rates
• Review portfolio profitability: Identify properties where margins will be squeezed
• Consider restructuring: Discuss with an accountant whether incorporation or other structures make sense
• Review rental pricing: Assess whether rent increases are necessary and feasible
• Plan for mortgage interest changes: Understand how the 22% tax credit affects your numbers

For 2028: Assess High-Value Properties

If you own properties worth over £2 million:

• Factor in the annual surcharge: £2,500 or £7,500 per year is a new ongoing cost
• Review your strategy: Consider whether disposal or alternative structures make sense
• Get professional valuations: Understand exactly where your properties sit relative to the thresholds

General Preparation Steps

1. Improve cash flow management: Higher taxes mean lower net returns—ensure you have adequate reserves
2. Optimise deductions: Make sure you're claiming every allowable expense
3. Keep excellent records: Digital, organised records are essential for MTD and tax efficiency
4. Seek professional advice: Complex portfolios benefit from specialist property tax planning
5. Stay informed: Tax rules continue to evolve—keep up with changes that affect your investments

Landlord Studio offers a comprehensive suite of features that help with all aspects of property management accounting, from expense tracking to integration with Xero and direct HMRC integration for streamlined MTD-compliance.

Looking Ahead: The New Tax Landscape for Landlords

The next three years will bring the most significant changes to landlord taxation in a generation.

These changes reflect a clear policy direction: the government is prioritising taxation of passive income from assets over earned income from work. For property investors, this means lower net returns and higher administrative burdens.

Success in this new landscape requires:

• Better systems: Digital tools that handle complexity efficiently
• Proactive planning: Understanding changes before they take effect
• Professional support: Expert advice for portfolio-level decisions
• Accurate compliance: Avoiding penalties through proper record-keeping

The landlords who thrive will be those who adapt early, embrace digital tools, and make informed decisions based on accurate financial data.

Don't wait until these changes become mandatory. Create your free Landlord Studio account today to:

• Start building digital records ahead of MTD 2026
• Understand your current tax position
• Model the impact of 2027 rate changes
• Streamline your rental property accounting
• Maximise deductions and minimise your tax bill

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