UK Landlord Tax in 2026: MTD, Section 24, and the Costs Landlords Miss

Property investment has never been a passive income exercise in the straightforward sense, but the tax obligations now attached to letting residential property in the UK make the business case more demanding to model correctly. Self-assessment alone no longer captures the full compliance picture. From April 2026, a significant proportion of landlords are operating under Making Tax Digital — a shift that changes not just when tax is filed but how financial records must be kept throughout the year.

The combined effect of quarterly reporting, the Section 24 mortgage interest restriction, the 5% Stamp Duty surcharge on additional residential properties, and the confirmed property income rate rises from April 2027 means that landlords who have not reviewed their tax position recently may be operating on assumptions that no longer hold.

What Has Making Tax Digital Changed for Landlords?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) replaced the traditional annual self-assessment return for landlords whose combined property and self-employment gross income exceeded £50,000 in the 2024/25 tax year. From 6 April 2026, those landlords must use HMRC-compatible software to keep digital records and submit quarterly updates — four per year rather than one annual return. The Final Declaration, which reconciles the full tax position, is still due by 31 January, but the intervening quarters carry their own submission obligations and, from the second year, a points-based late penalty system.

The second phase, covering landlords with qualifying income between £30,000 and £50,000, follows in April 2027. A third phase extending to £20,000 is expected from April 2028, though the detail has not yet been confirmed in legislation.

Spreadsheets remain permissible under MTD, but only where they are connected to HMRC via approved bridging software. Paper records and manual ledgers do not satisfy the digital record-keeping requirement.

What Can Landlords Actually Deduct?

The most consequential change to landlord taxation since 2020 is the Section 24 restriction — the phased removal of mortgage interest deductibility from rental income. Under the current regime, landlords cannot deduct mortgage interest payments from rental income when calculating their tax liability. Instead, they receive a 20% tax credit on the interest paid. For higher-rate taxpayers, this effectively means paying income tax on turnover rather than profit, which can push taxable income across marginal rate thresholds and create tax liabilities that appear disproportionate to actual profitability. Landlords significantly affected by Section 24 should review our guide on whether incorporating into a limited company makes financial sense for their situation.

Beyond financing costs, allowable deductions remain broad: letting agent fees, buildings and contents insurance, accountancy costs, ground rent, service charges, and repairs that restore rather than improve a property. The Replacement of Domestic Items Relief covers the like-for-like cost of replacing furniture and appliances but does not extend to the initial cost of furnishing a property. Landlords who let a furnished room within their own home may benefit from the Rent-a-Room scheme, which exempts up to £7,500 of gross income from income tax — halved to £3,750 where two people share the income from the same property.

The annual Property Allowance of £1,000 allows landlords with very small income to avoid a return altogether, but it cannot be claimed simultaneously with allowable expenses. Where actual costs exceed £1,000, claiming expenses produces the better outcome.

How Do SDLT and Capital Gains Apply?

Every additional residential property purchase in England and Northern Ireland attracts a 5% Stamp Duty Land Tax surcharge on top of the standard residential rates — a surcharge that applies from the first pound of consideration and significantly increases the upfront cost of portfolio expansion. The surcharge rose from 3% to 5% in the 2024 Autumn Budget, making the acquisition calculus materially different for landlords who were last active in the market before that change.

Capital gains on the disposal of residential property are taxed at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. The Annual Exempt Amount stands at £3,000 for the 2025/26 tax year. Critically, any capital gain on UK residential property must be reported and the tax paid within 60 days of completion — not at the following January self-assessment deadline. Missing this window generates automatic penalties.

This article reflects our understanding of the law at the time of publication. It is for general guidance only and does not constitute legal advice. Always verify against GOV.UK or seek qualified legal advice before acting.