Landlord Tax: The Complete UK Guide for 2026/27
12 June 2026 · AgentCheck Editorial · 9 min read
Part of our Landlord Tax Guide
UK landlords pay income tax on rental profit (20–45%), get only a 20% tax credit for mortgage interest under Section 24, pay Capital Gains Tax of 18% or 24% when they sell, and a 5% Stamp Duty surcharge when they buy. From April 2026, higher-income landlords must also file digitally under Making Tax Digital.
Tax is the single biggest variable in a buy-to-let's real return, and the rules have tightened sharply in recent years — the Section 24 mortgage restriction, a higher Stamp Duty surcharge, a shrunken Capital Gains allowance and now Making Tax Digital. This guide pulls every tax a UK landlord faces into one place, with the current 2026/27 figures and worked examples. It is general information, not personal tax advice — confirm your own position with a qualified accountant.
The taxes every UK landlord pays
There are four taxes that touch almost every private landlord, plus a reporting obligation that is new for many in 2026. Think of them across the life of an investment: you pay Stamp Duty when you buy, income tax on profit every year you let, and Capital Gains Tax when you sell. Making Tax Digital changes how you report the income-tax piece. Owning through a limited company swaps income tax for corporation tax — more on that below.
Income tax on your rental profit
Rental profit is added to your other income and taxed at your marginal rate. For 2026/27 the bands (England, Wales and Northern Ireland) are:
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
These thresholds are frozen until at least April 2031, which means rising rents quietly push more landlords into higher-rate tax — a phenomenon known as fiscal drag. There is also a £1,000 property allowance: if your gross rental income is £1,000 or less it is tax-free and need not be declared; above that you can deduct either the £1,000 allowance or your actual expenses, whichever is greater (you cannot do both).
Section 24: the mortgage interest restriction
This is the change that hit landlords hardest. Since 2020/21, you can no longer deduct mortgage interest and other finance costs from your rental income as an expense. Instead you receive a 20% basic-rate tax credit on those costs. For basic-rate taxpayers the effect is broadly neutral, but for higher and additional-rate landlords it sharply increases the real tax bill — and because your full rental income (before interest) counts toward your total income, Section 24 can even tip a basic-rate taxpayer into the higher band.
Here is a worked example for a higher-rate landlord with £12,000 rent, £6,000 mortgage interest and £2,000 of other allowable expenses:
| Step | Amount |
|---|---|
| Rental income | £12,000 |
| Less other expenses (not interest) | −£2,000 |
| Taxable profit | £10,000 |
| Tax at 40% | £4,000 |
| Less 20% credit on £6,000 interest | −£1,200 |
| Tax due | £2,800 |
Under the old rules the same landlord would have deducted the £6,000 interest first and paid 40% on £4,000 — just £1,600. Section 24 has, in effect, more than tripled the marginal cost of borrowing for higher-rate landlords, and is a major reason many now consider a limited-company structure.
Allowable expenses you can deduct
You pay tax on profit, not turnover, so claiming every legitimate expense matters. Costs must be wholly and exclusively for the letting business. Common allowable expenses include:
- Letting agent and management fees — fully deductible (see our fees guide).
- Repairs and maintenance — like-for-like repairs, not improvements.
- Replacement of domestic items relief — replacing (not upgrading) furniture, white goods and furnishings.
- Buildings and contents insurance, and landlord insurance.
- Ground rent, service charges and council tax during void periods.
- Accountancy fees, professional subscriptions and some legal costs.
- Utilities and broadband where you pay them, plus advertising for tenants.
- Mileage or motoring costs for managing the property.
Capital improvements — an extension, a new kitchen that is a clear upgrade — are not deductible against income, but they can reduce your Capital Gains Tax bill when you sell, so keep every receipt.
Capital Gains Tax when you sell
When you sell a rental property for more than you paid, the gain is taxed. For 2026/27 the residential rates are 18% for gains falling in your basic-rate band and 24% above it, after a much-reduced annual exempt amount of just £3,000 per person. Gains stack on top of your income, so most landlords pay the 24% rate on the bulk of a meaningful gain.
You can reduce the gain by deducting buying and selling costs (legal fees, Stamp Duty paid on purchase, agent fees) and the cost of capital improvements. If the property was ever your main home, Private Residence Relief may cover part of the gain. Crucially, UK residential property disposals must be reported and the tax paid within 60 days of completion — missing that deadline triggers penalties.
| CGT on residential property (2026/27) | Rate |
|---|---|
| Gain within basic-rate band | 18% |
| Gain above basic-rate band | 24% |
| Annual exempt amount | £3,000 per person |
| Reporting & payment deadline | 60 days from completion |
Stamp Duty when you buy
Buy an additional residential property in England or Northern Ireland and you pay the standard Stamp Duty Land Tax (SDLT) bands plus a 5% surcharge on every band — the surcharge rose from 3% to 5% on 31 October 2024. It applies to the whole price once the property costs £40,000 or more. Combined rates for an additional property are:
| Portion of price | Standard | Additional property (incl. 5%) |
|---|---|---|
| Up to £125,000 | 0% | 5% |
| £125,001 – £250,000 | 2% | 7% |
| £250,001 – £925,000 | 5% | 10% |
| £925,001 – £1.5m | 10% | 15% |
| Above £1.5m | 12% | 17% |
Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax) run their own systems and surcharges, so check the right one for your property's location.
Making Tax Digital for Income Tax
From 6 April 2026, landlords whose gross income from property and self-employment exceeds £50,000 must keep digital records and send HMRC quarterly updates through compatible software, replacing the single annual Self Assessment with five filings a year. The threshold then steps down: £30,000 from April 2027 and £20,000 from April 2028. Note this is measured on gross income, before expenses, and limited-company landlords are outside the regime (they file company accounts and pay corporation tax instead). If you are near a threshold, getting onto landlord accounting software early is the painless way to comply.
Should you own through a limited company?
Because companies are not affected by Section 24 — they deduct mortgage interest in full — incorporation has surged among higher-rate landlords. A company pays corporation tax (19% on profits up to £50,000, rising to 25% above £250,000, with marginal relief between) rather than income tax, and full interest relief can make a leveraged portfolio noticeably more tax-efficient.
But it is not a free win. Extracting profit as dividends or salary is taxed again in your hands; mortgage rates for limited companies are usually higher; there are annual accounting and filing costs; and moving existing personally-owned property into a company is itself a sale that can trigger CGT and a fresh SDLT charge. As a rough rule, incorporation tends to favour higher-rate landlords building or holding a larger, mortgaged portfolio for the long term — and it is exactly the decision to model with an accountant before acting.
A landlord's tax-year checklist
- Keep digital records of all rent and expenses as you go — essential under Making Tax Digital.
- Claim every allowable expense, and log capital improvements separately for future CGT.
- Use both spouses' allowances where you own jointly — two £12,570 allowances and two £3,000 CGT exemptions.
- File and pay on time — Self Assessment by 31 January, and any CGT within 60 days of a sale.
- Review your structure annually — personal vs company — as rates and your income change.
Legitimate ways to reduce your landlord tax bill
None of this is about avoidance — it is about using the reliefs and allowances the system already provides. The biggest levers for most landlords are spreading ownership and structure, not exotic schemes:
- Share ownership with a spouse in the lower tax band, so more profit is taxed at 20% and you use both personal and CGT allowances.
- Time your disposals across tax years, or sell in a year when your other income is lower, to keep more of the gain in the 18% band.
- Bring forward genuine repairs into a high-profit year, since they are deductible in the year incurred.
- Model the company question properly rather than incorporating on a hunch — the answer is very sensitive to your borrowing and how much profit you draw out.
- Don't leave the property allowance or expenses unclaimed — small amounts add up across a portfolio and across the years.
Because the thresholds are frozen and Section 24 bites hardest on borrowed, higher-rate portfolios, tax planning now makes a larger difference to net return than it did a decade ago. The landlords who treat it as an annual review — not a January scramble — keep materially more of their rent.
Related guides
- How to maximise rental yield in 2026 · Buy-to-let mortgage rates 2026
- 12 ways UK landlords can save on letting agent fees
- The Renters' Rights Act: a practical guide for landlords
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