With the end of the tax year approaching, now is the time for residential landlords to review their tax affairs, maximise reliefs and prepare for upcoming tax changes.
1: Prepare for Making Tax Digital (MTD) for Income Tax
Most landlords with property income over £50,000 must comply with MTD for Income Tax from 6 April 2026.
If you filed your 2024/25 tax return showing your turnover from property (i.e. rental income before expenses) was over £50,000, then it is likely you must comply with MTD for Income Tax from 6 April 2026. If it does apply, you should:
- sign up with HMRC for MTD
- put digital record-keeping systems in place
- check the support you can get from your accountant or software provider.
- review ownership structures (e.g., partnerships or companies) to simplify MTD
This is the most significant compliance change since self-assessment began in 1995.
Your first quarterly submission will be for the quarter from 6 April 2026 to 5 July 2026. The deadline is 7 August 2026. Fortunately, HMRC has stated that penalties won't apply for the first year.
2: Taxing the property profits
You usually calculate your property profits for income tax based on when you receive the income and when you spend the expenses. This means that you can control, to a limited extent, the profit which falls in 2025/26 and 2026/27.
Refurbishment timing – By incurring the expense, even if the work is not yet finished, in 2025/26 you will be securing the tax relief to reduce your profits in 2025/26. This means you will get relief a year earlier and also help to reduce your payments on account towards the following year.
Tax band planning – You should establish what your tax bands are and plan based on the spare capacity. The Basic Rate band of 20% finishes when you have income of £50,270; after that, there is the 40% band. When you reach £100,000 of income, your personal allowance begins to be tapered towards nil, which can result in a marginal tax rate of 60%. Adjusting your profit from your property across 2025/26 and 2026/27 is possible by shifting the date you pay your expenses.
Sharing income – For those who are married or in a civil partnership, you may want to consider the split of the profits between you both. If the property is in sole names, there may be a tax saving in reorganising the property ownership so the profits are shared between you to use up basic rate bands or keep below the £100,000 threshold.
Profits don’t need to be shared 50/50, but you do need to follow the underlying beneficial ownership of the property. Transferring property between you shouldn’t have CGT due to the spouse exemption, but can have SDLT applied in some cases. A similar principle can apply for unmarried joint property owners, but this can be more complex to set up due to CGT.
3: Make pension contributions
Pension contributions made in 2025/26 can help to reduce your tax for the year. Pension contributions extend the basic rate band, which will mean that your profits will be charged at a reduced tax rate if you are a higher or additional rate taxpayer.
Your pension provider can also reclaim tax (20% of the gross pension contribution) from HMRC and add that to your pension pot. Those earning over £100,000 may be able to reclaim lost personal allowances, giving an effective marginal relief on the pension contribution of up to 60%.
Planned income tax rise on property profits
Income tax rate increases were announced by the chancellor in her autumn budget. For property profits, there is an income tax rate increase from April 2027. The tax rate on property profits is going to be subject to a 2% surcharge over the usual tax rates from April 2027. This means that the basic rate will be 22%, the higher rate 42% and the additional rate 47%.
This further tax rate increase creates new planning opportunities:
- consider accelerating income into 2025/26 and 2026/27
- defer deductible expenditure to benefit from higher relief from April 2027
- review whether incorporation becomes more attractive before the new rates apply
Re-structuring your property – property incorporation
The recent increases in property taxation for landlords have meant that landlords have been re-examining companies for holding property. In particular, the restrictions on loan interest relief for individual landlords continue to make corporate ownership attractive for some.
Companies pay corporation tax on profits, which may be lower than personal income tax rates depending on profit levels. They also offer flexibility on profit extraction – it may be beneficial to control the distribution of profit from the company to individual shareholders.
It is worth reviewing whether a company could be right for you ahead of the introduction of MTD and the upcoming planned increase in income tax on property income from April 2027.
Capital Gains Tax “CGT”
Landlords have increasingly been reviewing the returns from their portfolio and, in some cases, selling less financially viable property. Here is a reminder of the basic rules.
- The gain is calculated on the difference between the purchase price, including the costs of acquisition like SDLT and the conveyancing fees, and the sale price.
- The annual exemption remains at £3,000 for 2025/26 and 2026/27.
- There is no longer a relief for indexation.
- The CGT rate for a higher-rate taxpayer is 24%. The gain is added on top of the income to establish the tax band. Where the gain falls in the basic rate band, the rate.
- For residential property, you have to report a gain to HMRC and pay the tax all within 60 days of selling.
- Tax reliefs are available where the property has been a main residence
- Non-UK tax resident people have different calculation and reporting rules.
Corporate Landlords – dividend planning
Corporate landlords have had some stability with their tax treatment for a few years, but change is coming with an income tax increase for dividends.
Basic and higher rate dividend taxes increase by 2% from April 2026, so taking dividends before 5 April 2026 may be tax efficient. The new tax rates from 6 April 2026 are 10.75% for a basic rate payer and 35.75% for a higher rate payer. Note that the additional rate of tax on dividends remains unchanged at 39.35%.
Some directors may have a director's loan account upon which they can take a repayment of capital without further personal tax, but when that is taken in full, dividends are typically taken.
