Landlord Tax 2026:
Everything You Need to Know

The 2026 tax year is one of the most consequential in a generation for UK landlords. Making Tax Digital for Income Tax has launched. The Furnished Holiday Lettings regime has been abolished. The Renters’ Rights Act is now in force. Capital Gains Tax rates have been restructured. And a 2% income tax rate rise on property profits is confirmed for April 2027.

If you own rental property — whether a single buy-to-let, a portfolio of flats, or what was once a holiday let — this guide covers everything you need to understand, comply with, and plan around in 2026.

The 2026 landlord landscape: what has changed

The pace of change affecting landlords since 2015 is unlike anything seen in the preceding three decades. The graph of reform runs in one direction: more tax, more compliance, more complexity. Understanding the current position accurately — not through the lens of rules that applied five years ago — is essential.

The most immediate changes in 2026 are: the launch of Making Tax Digital for those with income above £50,000 (covered in Section 7); the full effect of the FHL abolition for the first complete tax year since April 2025 (Section 5); and the Renters’ Rights Act coming into force on 1 May 2026 (Section 8).

How rental income is taxed in 2026

Rental income is treated as property income for UK income tax purposes. Individual landlords pay income tax on their net taxable rental profit — calculated as gross rental receipts minus allowable expenses — at their marginal income tax rate.

Rental profits are added on top of all other income (employment, pensions, dividends, savings). This means a landlord with a salary of £45,000 and rental profit of £15,000 pays 40% income tax on the rental profit, not 20%, because it sits above the basic rate threshold.

These rates apply for 2025/26 (the return you file by January 2027). From April 2027, the government has confirmed a 2 percentage point increase on the income tax rate applied to rental and property income, taking the effective rates to 22%, 42% and 47% on property profits. Combined with frozen thresholds and Section 24, many leveraged landlords — particularly those with mortgaged properties held personally — face sharply compressing net yields.

Section 24: the mortgage interest restriction

The Section 24 mortgage interest restriction has been fully phased in since the 2020/21 tax year and remains unchanged for 2026. Under Section 24, individual landlords can no longer deduct mortgage interest and other financing costs as a direct expense from rental income. Instead, you receive a basic-rate tax credit equal to 20% of your finance costs.

Example: Rental income £20,000. Mortgage interest £10,000. Allowable expenses (excluding mortgage) £3,000.

Taxable profit = £20,000 − £3,000 = £17,000 (not £7,000 as under the old rules).
Tax at 40% (higher rate landlord) = £6,800.
Less 20% tax credit on mortgage interest (20% × £10,000) = £2,000.
Net tax payable = £4,800 (vs £2,800 under the old rules).

The practical impact is most severe for higher-rate taxpayers with large mortgages relative to rental income. In some cases, landlords are now paying income tax on a rental loss in real economic terms. This is the primary driver of incorporation decisions for many landlords.

Limited companies are not subject to Section 24. They continue to deduct mortgage interest in full as a business expense before calculating their corporation tax liability.

Allowable expenses for landlords

Individual landlords can deduct the following revenue expenses from gross rental income:

• Letting agent fees and management charges
• Buildings and contents insurance premiums
• Maintenance and repairs — restoring the property to its original condition. This includes repainting, fixing broken fixtures, replumbing, and repairing structural faults. It does not include improvements (which are capital expenditure).
• Council tax, water rates, gas and electricity where paid by the landlord
• Ground rent and service charges
• Accountancy fees for preparing rental accounts and tax returns
• Legal fees for renewing short leases (under 50 years) — note that legal fees for granting a new lease are capital, not revenue
• Advertising costs for finding tenants
• Replacement of Domestic Items Relief — the cost of replacing like-for-like furnishings in residential properties (sofas, beds, appliances, curtains). This covers replacement only — the initial purchase of furnishings when first letting is not allowable. There is no deduction for the original item, but the cost of the replacement (less any proceeds from the old item) is fully deductible.

Mortgage interest is dealt with separately via the Section 24 tax credit (see above). Capital expenditure — adding a new extension, converting a loft, replacing the entire heating system — cannot be deducted from income but may reduce your CGT liability when you sell the property.

The FHL regime abolition: what former holiday let owners must do

The Furnished Holiday Lettings (FHL) tax regime was abolished on 6 April 2025. For the 2025/26 tax year — the return you are now preparing — this is the first full year under the new rules. If you own a short-term holiday let or Airbnb property, your income is now taxed identically to any other residential rental property.

What you have lost as a former FHL landlord:

• Capital allowances on furniture, equipment and fittings. You can no longer claim the Annual Investment Allowance or writing-down allowances on new furnishings. Replacement of Domestic Items Relief applies instead (replacements only, not initial purchases).
• Business Asset Disposal Relief on sale of the property. FHL properties previously qualified for BADR at 10% (now 14%, rising to 18%) on the gain. From 6 April 2025, standard residential CGT rates of 18%/24% apply instead. If you sold the property before 6 April 2025 and it met the FHL conditions at the time of sale, BADR still applies to that disposal.
• Pension contribution relief. FHL profits previously counted as “relevant earnings” allowing larger personal pension contributions with tax relief. This no longer applies. Your pensionable earnings are now based on other earned income sources only.
• Loss relief flexibility. FHL losses could previously be offset against other income in certain circumstances. They are now restricted to future property income, like all other rental losses.
• Section 24 exemption. FHLs were previously exempt from the mortgage interest restriction. They are now fully subject to Section 24.

Capital Gains Tax on property in 2026

CGT rates on residential property were restructured at the October 2024 Autumn Budget. From 30 October 2024, the previously higher residential property CGT rates (18%/28%) were reduced and unified with all other assets:

Taxpayer	CGT rate on all assets (from 30 Oct 2024)
Basic rate taxpayer	18%
Higher & additional rate taxpayer	24%

The annual CGT exempt amount is £3,000 for 2025/26 (reduced from £12,300 in 2022/23). This allowance cannot be carried forward. For most landlords selling a property, the reduction in the exempt amount means significantly more of the gain is taxable than it was two or three years ago.

Private Residence Relief

If the property being sold was your main home at any point, you may be entitled to Private Residence Relief (PRR) to exempt part of the gain. PRR covers the period the property was your main residence plus the final 9 months of ownership in all cases (extended to 36 months where a disability or care home move applies). Lettings Relief — which previously provided up to £40,000 of further relief on a let property that was also your main home — was significantly restricted in April 2020 and now only applies where the landlord shares occupation with the tenant.

The 60-day CGT reporting rule

If you sell a UK residential property that is not your only or main home and a CGT gain arises, you must report the gain and pay the estimated CGT to HMRC within 60 days of the completion date. This is done through the HMRC ‘Report and pay Capital Gains Tax on UK property’ online service and is separate from your annual self-assessment return. Failure to report within 60 days results in automatic late filing penalties, even if the tax was ultimately paid correctly through self-assessment.

Making Tax Digital for Income Tax: mandatory from April 2026

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is now mandatory for landlords whose combined gross income from UK property and self-employment exceeded £50,000 in the 2024/25 tax year. This applies from the tax year starting 6 April 2026.

Gross qualifying income threshold	MTD ITSA mandatory from
Over £50,000 (property + self-employment combined)	6 April 2026
Over £30,000	6 April 2027
Over £20,000	6 April 2028

Key points for landlords:

• The threshold is based on gross income (before expenses), not profit
• If a property is jointly owned, only your share of the income counts towards your personal threshold
• Limited company landlords are not affected — MTD ITSA applies to individuals only
• Overseas property income does not count towards qualifying income
• Former FHL income is counted as UK property income for MTD purposes

Under MTD, the annual self-assessment return is replaced by a new digital reporting cycle:

• Four quarterly updates — summaries of income and expenses submitted within one month of each quarter end (7 August, 7 November, 7 February, 7 May)
• End of Period Statement (EOPS) — finalises your property income figures for the year
• Final Declaration by 31 January — the equivalent of your current tax return, covering all income sources

HMRC has confirmed a soft-landing penalty period for 2026/27 — no penalty points will be issued for late quarterly updates during this first year. However, the obligation to submit still applies, and the Final Declaration deadline of 31 January 2028 carries the same penalty regime as a standard self-assessment return. From 2027/28, a points-based penalty system applies — four points triggers a £200 fine, and further financial penalties accrue beyond that.

The Renters' Rights Act 2025: what landlords must know

The Renters’ Rights Act 2025 received Royal Assent in October 2025 and came into force on 1 May 2026. This is the most significant reform to the private rental sector since the Housing Act 1988. While this is primarily a regulatory rather than a tax change, its practical implications for landlords are substantial:

• Section 21 ‘no-fault’ evictions are abolished. From 1 May 2026, you can no longer use a Section 21 notice to evict a tenant without a reason. All evictions must now go through Section 8, relying on specific, legally defined possession grounds.
• All tenancies are now periodic. Fixed-term Assured Shorthold Tenancies no longer exist for new tenancies after 1 May 2026. All tenancies are open-ended periodic tenancies from the outset.
• New written tenancy requirements. All tenancies must include specific written information. A government-produced information sheet must be provided to all existing tenants by 31 May 2026.
• Discrimination protections expanded. From 1 May 2026, landlords cannot refuse a tenant solely because they receive benefits or have children.
• Rent increases restricted. Landlords can only increase rent once per year and must use the prescribed notice procedure.

Should you incorporate? Personal vs limited company ownership

The question of whether to hold rental properties personally or through a limited company is one of the most common — and most complex — decisions facing UK landlords. The answer depends on your specific circumstances and should never be taken without proper modelling.

The primary tax advantage of a limited company for landlords is that companies are not subject to Section 24. They can deduct mortgage interest in full as a business expense. A higher-rate taxpaying landlord with a heavily mortgaged portfolio paying 40% personal income tax on inflated property profits (due to Section 24) could pay significantly less corporation tax (25% at the main rate, or 19% if profits under £50,000) on the true economic profit.

However, incorporation is not straightforwardly beneficial and the following costs and complications apply:

• SDLT (Stamp Duty): Transferring properties to a company is generally treated as a disposal and acquisition for SDLT purposes. The 5% SDLT surcharge on second properties applies, and SDLT can be a significant upfront cost on portfolio transfers.
• CGT on transfer: Transferring properties from personal to corporate ownership is a disposal for CGT purposes. The current market value at the date of transfer is used, which can trigger substantial CGT even where no cash changes hands.
• Double taxation on extraction: Profits in a company are subject to corporation tax. When extracted as dividends, they are then taxed again as dividend income. This double layer means the effective combined rate can exceed the personal income tax rate for some landlords.
• Mortgage complications: Many buy-to-let mortgage products are not available to limited companies, or are available at higher rates. Refinancing into a company can be costly and administratively complex.
• Administration costs: A company requires annual accounts, a corporation tax return, Companies House filings, and separate bookkeeping — all of which add to running costs.

Incorporation can be highly advantageous where: the landlord is a higher-rate taxpayer with significant finance costs; they intend to retain profits within the company rather than extract them immediately; the portfolio is early in its life with lower embedded gains; and mortgage availability at competitive rates is not an issue. Whether it works for you requires a full financial model. DKAT provides this analysis as part of our landlord advisory service.

Stamp Duty Land Tax surcharge on second properties

Since October 2024, the SDLT surcharge on the purchase of additional residential properties (second homes and buy-to-let) is 5%, up from the previous 3%. This applies on top of the standard SDLT rates and applies to limited companies as well as individuals purchasing an additional property.

Property value	Standard SDLT rate	Additional property surcharge	Total rate
Up to £250,000	0%	5%	5%
£250,001 – £925,000	5%	5%	10%
£925,001 – £1.5m	10%	5%	15%
Above £1.5m	12%	5%	17%

Landlord tax planning: what to do now

Given the scale and pace of change, the most important thing any landlord can do in 2026 is to have an up-to-date picture of their tax position — property by property, incorporating all the current rules. Here is a practical action list:

• Check your MTD status now. If your combined gross property and self-employment income exceeded £50,000 in 2024/25, you must be submitting quarterly updates from 6 April 2026. The first quarterly deadline is 7 August 2026.
• Model your position under the 2027 income tax rate increase. A 2% rise in the marginal rate on property income lands in April 2027. The planning window is now.
• Review your Section 24 position. Ensure your self-assessment return correctly reflects the mortgage finance cost restriction. HMRC is increasingly checking this area.
• Former FHL owners: review your 2025/26 return carefully. Capital allowances, BADR and pension contribution eligibility are gone. Ensure your return does not erroneously apply the old FHL rules.
• Check the 60-day CGT rule if you sold any property. If you sold a residential property and did not report within 60 days of completion, penalties may already be accruing.
• Consider incorporation modelling. If you are a higher-rate or additional-rate taxpayer with significant mortgage debt, a formal incorporation analysis is worthwhile. Do not incorporate without it.
• Review your portfolio structure in light of the Renters’ Rights Act. Changes to possession grounds may affect your strategy for specific properties.

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Important notice: This article is based on HMRC published guidance, the Finance Acts, and legislation current at the date of writing (April 2026). All rates, thresholds and rules apply to the 2025/26 and 2026/27 tax years as stated and are subject to change. The section on the Renters’ Rights Act reflects the Act as in force from 1 May 2026; landlords should seek independent legal advice on specific tenancy matters. The section on incorporation is general in nature only — individual circumstances vary significantly and formal professional advice is required before any restructuring decision. This article is for general information and educational purposes only and does not constitute tax, legal or financial advice. DKAT Accountants Ltd is regulated by the Association of Chartered Certified Accountants (ACCA). This article does not constitute a financial promotion.