Taxes on Landlords: an Inevitable Pairing in the Private Rented Sector

It is a trope, widely repeated, that the only two certainties in life are death and taxes. It is a trope because it’s true and landlords and other property professionals will spend time, money or both keeping on top of their tax affairs.

It doesn’t matter if you are an accidental landlord with a single property, or the CEO of a property investment company with an extensive portfolio, tax law will have an impact on you.

To keep things interesting, geography plays a part too – laws which apply in England, may be noticeably different in Scotland. Wales may be similar to England, but not quite the same and Northern Ireland is, well, Northern Ireland.

So any summary of the tax situation in the UK cannot be a one-size-fits-all and we are property professionals, not accountants or tax lawyers, so while we hope this is all useful, any questions should be directed to the professionals.

Let’s look at what’s changed over the past 12 months in respect of taxes on landlords.

Income tax

Pretty much all of us get to pay income tax, one way or another. If you’re a small landlord, owning the property in your own name, you’ll get taxed on the profit from your rental property.

If you own a company with a large portfolio, you’ll get taxed on your salary and dividends at different rates.

As you will appreciate, that is a very simplistic summary; landlords operating as limited companies may get taxed in different ways, or in a mixture of ways. There are also a wide variety of business costs which can offset your total tax bill.

However, in the 2025 budget, the Chancellor, Rachel Reeves, announced the following change to tax rate applying to income from property:

The introduction of new separate tax rates for property income. These new rates will apply from April 2027. The property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%.

In short, landlords will pay a higher rate of tax on the income they derive from their property from April 2027.

Remember that Scottish Income tax is slightly different to the rest of the UK as the Scottish Government has the power to vary the rates should it see fit.

In 2027, when the new property income tax rates come into force, the Scottish Government will gain the power to also amend the rate of tax on income derived from property. Whether it will do so remains to be seen however.

With the Scottish Parliament elections due this year, 2026, it would be foolish to try and make any predictions about what 2027 will bring!

What effect this change will have on the sector remains to be seen, but the prediction that the market will move increasingly towards larger, corporate landlords in the coming years may well be accurate.

There’s little doubt that this change will affect smaller, buy-to-let landlords to a greater extent than it will corporate entities, and this combined with the changes contained within the Renter Rights Act may persuade many to quit altogether.

Capital Gains Tax

There have been no changes to the rates of Capital Gains Tax (CGT) since the 2024 budget raised them to 18% for standard rate tax payers, and 24% for higher rate tax payers.

The most common way to mitigate the effects of CGT, if you’re a higher-rate tax payer, is to trade as a limited company, registered for corporation tax. The company’s gains would attract tax at 19%.

The annual exempt amount applicable to CGT remains at £3,000 per annum, unchanged from last year.

While there is little cheer here, despite the lack of change, it appears that the CGT increases may not have worked out as planned. We would encourage you not to hold your breath waiting for a U-turn however.

Property specific taxes

This where you’ll see greater national variation within the UK. It is common across the UK to apply a surcharge to buyers of additional properties, regardless of their reasons for doing so.

In England, this is handled through enhanced rates of Stamp Duty Land Tax (SDLT). The link will allow you to see how it’s applied and the applicable rates. While there are some reliefs available, they may not apply to smaller landlords.

Scotland approaches the same issue by way of the Additional Dwelling Supplement (ADS), currently 8% of the purchase price of the property. Unlike England however, relief is available if multiple properties are included in a single transaction.

If you purchase six or more properties in a single transaction, the purchase will not be subject to ADS, making the transaction much more tax efficient, albeit at significant cost.

In Scotland, there is an ongoing review into Land and Buildings Transaction Tax. This aims to deliver its evidence before the end of the current parliamentary session, with recommendations being placed before parliament in the next session.

Wales has a lower and higher rate of Land Transaction Tax (LTT) which apply largely as in Scotland and England, however like Scotland there is some measure of relief available depending on the circumstances of the sale.

Currently Northern Ireland appears to conform to English law in this area, certainly their stamp duty calculator sends the user directly to the HMRC website.

Scottish Budget 2026

There were no private rented sector-specific provisions in the Scottish budget just presented to the Scottish Parliament, which will cheer those working in the industry.

Advice from the property pros

The most significant recent change to UK taxes which will affect landlords is the Chancellor’s announcement of a 2% increase in the tax on income derived from property.

Slated for April 2027, barring as yet unforeseen events, this will happen and the PRS will have to decide how to react. In Scotland, time and the electorate will determine whether the Scottish Government follows suit.

Overall, the current and projected tax regime in the UK is likely to accelerate the move from small landlords with maybe one or two properties towards a more corporate model where landlords are limited companies owning multiple properties.

Whether this is actually desirable is something we’ll examine in a future blog.

That said, as we’ve previously observed, the government is probably done with legislation affecting the PRS and landlords for the foreseeable future. With the Renters Rights Act now law, the government will turn its attention elsewhere.

The outcome of the aforementioned review of LBTT in Scotland may to some extent depend on the political makeup of the next Scottish Government, post May 2026.

So in broad terms, we know where we stand, we have a reasonable idea of what’s coming and we wait to see how landlords and the PRS in general will evolve to make the best of the legislative and economic landscape.

In summary…

Although we certainly live in rather interesting times as far as global politics are concerned, the PRS across the UK finds itself in what should be relatively calm waters.

We’re not suggesting that everyone is happy with the situation, however the sector can look forward to a period of relative stability during which we may see a shift towards a different dominant model within the private rented sector.

It is therefore to be hoped that this will also prove to be a positive period for the market, with an improving economy and continuing demand for good quality rented accommodation.

As ever, if you have any questions about the market and your place in it, we’d be delighted to chat with you. There are definitely still opportunities for those looking to invest in property.

Thanks for reading this brief trip through the taxes affecting landlords in the UK, hopefully it’s been helpful.

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]