Landlord tax is changing faster now than at any point in the last ten years. In 2026/27, Making Tax Digital started for landlords with income over £50,000, and from 6 April 2027 rental profits will be taxed at new property income rates of 22%, 42% and 47%. At the same time, the rent a room scheme still lets you earn £7,500 a year tax-free from a lodger.

Want this handled for you? Our accountants for landlords prepare your rental tax return and Making Tax Digital updates for a fixed fee.

This guide explains how landlord tax works in 2026/27, how to use the rent a room scheme, who needs to follow Making Tax Digital and when, and what the 2027 rate rise will cost you, with worked examples throughout.

How landlord tax works in 2026/27

As an individual landlord, you pay Income Tax on your rental profit, not on the rent you receive. Your profit is the rent minus allowable expenses. It is added to your other income, such as a salary or pension, and taxed at your usual rates. HMRC has several ways to find out if you have rental income, so it always pays to declare it.

For 2026/27 in England, Wales and Northern Ireland, those rates are:

Taxable income	Rate
Up to £12,570 (personal allowance)	0%
£12,571 to £50,270	20% basic rate
£50,271 to £125,140	40% higher rate
Over £125,140	45% additional rate

If your gross rental income is £1,000 or less in the tax year, the property allowance means you do not need to pay tax or tell HMRC about it. Above that, you can either deduct the £1,000 allowance or your actual expenses, whichever saves more.

Allowable expenses for landlords

You can deduct costs that are wholly and exclusively for the letting business, including:

• Letting agent and management fees
• Repairs and maintenance, but not improvements
• Landlord insurance, ground rent and service charges
• Council tax, utilities and broadband if you pay them for the tenant
• Replacing furniture and appliances like for like in a furnished let
• Accountancy fees, safety certificates and advertising for tenants

Mortgage interest and Section 24

Mortgage interest is not deducted from your rental profit. Instead, you receive a tax credit equal to 20% of your finance costs. This is known as Section 24, and it hits higher-rate landlords hardest because they only get relief at 20% on interest that would otherwise save them 40%.

The rent a room scheme: £7,500 tax-free

The rent a room scheme lets you earn up to £7,500 a year tax-free from letting furnished accommodation in your own home. If you share the income with someone else, such as a partner, the limit is £3,750 each.

To qualify, the room must be furnished and in your only or main home, and you must live there during the letting. It can be a lodger, a student or short stays through a site such as Airbnb, as long as the space is not a separate, self-contained flat.

How rent a room relief is worked out

If your gross receipts are £7,500 or less, the relief is automatic and you do not need to do anything. If you earn more, you choose between two methods each year:

• Method A: pay tax on your actual profit, which is rent minus expenses.
• Method B: pay tax on everything above £7,500, with no expenses deducted.

Here is an example. You let a room for £750 a month, which is £9,000 a year, and your extra costs are £1,200.

	Method A	Method B
Rent received	£9,000	£9,000
Deduction	£1,200 expenses	£7,500 rent a room allowance
Taxable profit	£7,800	£1,500

Method B is far better here. As a basic-rate taxpayer you would pay £300 instead of £1,560. You must file a Self Assessment tax return to claim it when your receipts go over £7,500.

Making Tax Digital for landlords

Making Tax Digital (MTD) for Income Tax means keeping digital records and sending HMRC a summary of your income and expenses every quarter, using compatible software. It is being phased in based on your qualifying income, which is your gross self-employment and property income added together, before expenses. So if you also sell on eBay, Etsy or Amazon as a business, that income counts towards the threshold too; our guide to tax for online sellers explains how it is taxed.

You join MTD from	If your qualifying income is over	Based on your tax return for
6 April 2026	£50,000	2024/25
6 April 2027	£30,000	2025/26
6 April 2028	£20,000	2026/27

If you own a property jointly, only your share of the rent counts towards the threshold.

MTD quarterly update deadlines

Quarterly updates run on fixed dates for everyone, whatever your accounting period:

Quarter	Update due
6 April to 5 July	7 August
6 July to 5 October	7 November
6 October to 5 January	7 February
6 January to 5 April	7 May

You still finish the year with a final declaration by 31 January. If you joined MTD in April 2026, your next update is due on 7 November 2026. Late submissions build up penalty points, and a penalty follows once you reach the limit.

For a step-by-step setup plan, read our guide to Making Tax Digital for Income Tax for landlords.

The 2027 rise in landlord tax

From 6 April 2027, property income will have its own tax rates in England, Wales and Northern Ireland, two percentage points higher than the rates on earnings:

Band	2026/27 rate	From April 2027
Basic rate	20%	22%
Higher rate	40%	42%
Additional rate	45%	47%

The government has confirmed that relief for finance costs such as mortgage interest will be given at the new property basic rate of 22%. You can read the details in the GOV.UK policy paper on property, savings and dividend tax rates. Scotland sets its own rates, so Scottish landlords need to check separately.

What the landlord tax rise will cost you

For every £10,000 of rental profit, the change adds £200 a year to your bill:

• A basic-rate landlord pays £2,200 instead of £2,000.
• A higher-rate landlord pays £4,200 instead of £4,000.
• An additional-rate landlord pays £4,700 instead of £4,500.

That may not sound like much, but for a portfolio making £40,000 profit it is an extra £800 every year, on top of Section 24.

How to prepare for landlord tax changes

There is still time to plan before April 2027. The right steps depend on your circumstances, but these are the ones we discuss most often with landlords:

1. Get digital now. Start keeping records in MTD software this year, even if you will not join until 2027 or 2028.
2. Review who owns the property. Couples who own property jointly can sometimes split income unequally using a declaration of trust and Form 17, which can move profit to a lower-rate taxpayer.
3. Think about timing. Because rates rise in April 2027, a deductible repair made after that date saves slightly more tax. Income you can legitimately receive earlier is taxed at today’s rates.
4. Use pension contributions. Personal pension contributions extend your basic-rate band and can bring profit back down from 40% to 20%.
5. Weigh up a limited company carefully. Companies pay Corporation Tax instead and get full relief for mortgage interest, but moving existing properties can trigger Capital Gains Tax and Stamp Duty Land Tax. Get advice before you act.

Selling a rental property

When you sell a property that has not been your main home, you pay Capital Gains Tax on the gain above the £3,000 annual exempt amount, at 18% or 24%. You must report the sale and pay the tax within 60 days of completion. Our capital gains tax calculator gives you an estimate, and our Capital Gains Tax advice team can help you reduce the bill.

Frequently asked questions

Get help with landlord tax in Bolton

Cangaf looks after landlords across Bolton and Greater Manchester, from one buy-to-let to large portfolios. Our ACCA and AAT qualified team prepares your Self Assessment tax return, sets you up for Making Tax Digital and plans ahead for the 2027 changes, all for a fixed fee.

Get a free quote or call 01204 859315 to talk to a landlord tax accountant.

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