A 2026 Guide for Landlords
If you’re a landlord, one of the most common questions you’ll ask is: how much of my rental income will I actually keep? The answer depends on your wider income, your expenses, your mortgage position and, increasingly, new reporting rules under Making Tax Digital.
At PG Owen Accountants, we’re helping more landlords plan ahead, particularly with the start of Making Tax Digital for Income Tax in April 2026. Here’s what you need to know about rental income tax in 2025/26 and what’s changing over the next few years.
Rental Income Is Taxed as Income, Not Separately
In the UK, rental income isn’t taxed under a special system. Instead, your rental profit is added to your other income (such as employment or pension income) and taxed at your normal Income Tax rate.
The keyword here is profit. You do not pay tax on the total rent you receive, only on what’s left after allowable expenses have been deducted.
Allowable expenses typically include things like letting agent fees, landlord insurance, routine repairs and maintenance, replacement of domestic items, and accountancy costs. However, improvements that increase the value of the property are not deductible against rental income (although they may reduce Capital Gains Tax later when you sell).
There is also a £1,000 Property Income Allowance available. If your total rental income is below this threshold, you may not need to declare it. If it’s above £1,000, you can choose between deducting actual expenses or claiming the allowance — whichever is more beneficial.
What Are the Current Tax Rates for Landlords?
For the 2025/26 tax year in England and Wales, rental profits are taxed at the standard Income Tax bands:
- 0% up to £12,570 (Personal Allowance)
- 20% from £12,571 to £50,270
- 40% from £50,271 to £125,140
- 45% above £125,140
These thresholds are currently frozen until April 2028. That freeze is important. Even if tax rates themselves don’t increase, more landlords are being pushed into higher tax bands as incomes rise, a phenomenon often referred to as “fiscal drag.”
For example, if you earn £40,000 from employment and make £20,000 rental profit, your total income becomes £60,000. That means part of your rental income will be taxed at 40%, not 20%. This is where many landlords see their tax liability increase faster than expected.
Mortgage Interest: Why It Matters More Than Ever
One of the biggest changes in recent years has been the restriction of mortgage interest relief. Landlords can no longer deduct mortgage interest in full from rental income.
Instead, you receive a 20% tax credit on your mortgage interest payments.
For basic rate taxpayers, this often makes little difference. But for higher-rate taxpayers, it can significantly increase the effective tax bill. If you’re paying tax at 40% but only receiving 20% relief on mortgage interest, the numbers can quickly feel less favourable.
This is one of the main reasons some landlords are reviewing ownership structures and long-term plans.
What About Capital Gains Tax?
While this doesn’t apply annually, it’s important to factor it in. When you sell a rental property, you may pay Capital Gains Tax (CGT) on the profit.
For residential property disposals in 2025/26, CGT is charged at 18% for basic-rate taxpayers and 24% for higher- or additional-rate taxpayers. The gain must be reported and paid within 60 days of completion.
Although separate from rental income tax, CGT should always form part of your long-term planning.
Making Tax Digital: The Biggest Change Facing Landlords
Beyond tax rates, the most significant development is how landlords will report their income.
HM Revenue & Customs is introducing Making Tax Digital for Income Tax (MTD for IT), which fundamentally changes how many landlords report rental income.
Rather than filing one Self Assessment tax return per year, affected landlords will need to keep digital records and submit quarterly updates using compatible software.
When Does MTD Start?
The rollout is phased:
- From April 2026, landlords with gross rental and/or self-employment income over £50,000 must comply.
- From April 2027, the threshold drops to £30,000.
- From April 2028, the threshold will be reduced further to £20,000.
It’s important to note this is based on gross income before expenses, not profit.
How Will MTD Affect You in Practice?
For landlords who already use accounting software, the transition may be relatively smooth. For those relying on spreadsheets or paper records, it represents a significant shift.
You’ll move from one annual submission to at least five per year, four quarterly updates plus a final end-of-year declaration.
While this increases administrative responsibility, it can also provide better visibility over tax liabilities throughout the year. Instead of waiting until January to discover a large tax bill, you’ll have a clearer picture of your position in real time.
However, there may be additional software costs and potentially higher accountancy fees if more frequent reporting support is required.
So, How Much Will You Actually Pay?
There isn’t a single answer.
Some landlords will pay 20% on most of their rental profit. Others will find part of their income taxed at 40% or even 45%. Those with large mortgages may feel the impact of restricted interest relief more sharply. And from April 2026 onwards, many will also face increased compliance obligations under MTD.
With frozen tax thresholds and rising rents in many areas, it’s sensible to review your position sooner rather than later.
Planning Ahead
If you’re unsure how rental income affects your wider tax position, or whether you’ll fall within the MTD thresholds, now is the time to seek advice.
At PG Owen Accountants, we help landlords understand their liabilities, prepare for Making Tax Digital, and plan efficiently for the years ahead.
Proactive planning can reduce surprises, improve cash flow management, and ensure you remain fully compliant as the rules evolve. Get in touch today to learn how we can help you.