Budget 2026: Another tax hit for landlords

Higher tax rates on rental income, more frequent tax payments and increasing compliance obligations mean landlords face further pressure following the 2026 Budget.

Landlords are facing another squeeze on rental profits following the Budget announcements today. With higher income tax rates on property income from April 2027 and changes to the timing of tax payments from April 2029, property investors will need to review their finances and plan ahead.

The increase in the trading allowance offers some relief for those with smaller amounts of additional income but for landlords, the focus is firmly on the impact of higher taxation and the need for careful cash-flow management.

Higher tax rates on rental income

The headline announcement for landlords is an increase of a further two percentage points in the income tax rates applying to property income from 6 April 2027.

We were already expecting a two per cent increase in the tax rates from April 2027 (as announced at Budget 2025), taking the basic rate of tax from 20% to 22%, the higher rate from 40% to 42% and the additional rate from 45% to 47%. However, we will now see the rates increase further to 24% for the basic rate, 44% for the higher rate, and 49% for the additional rate.

For landlords with taxable rental profits, this means more tax will be payable even if their rental income and expenses remain unchanged. The impact will depend on individual circumstances, but those with larger portfolios or significant taxable profits could see a noticeable reduction in their returns.

The increase comes against a backdrop of rising maintenance costs, mortgage expenses and other property-related outgoings. Individual landlords may feel the effect particularly strongly because restrictions on relief for residential finance costs can mean that taxable profits do not reflect the cash actually available after mortgage payments.

Landlords should consider reviewing their rental yields, financing arrangements and longer-term investment plans. Incorporating the new rates into financial forecasts now will help identify any potential pressure on profitability before the changes take effect.

More regular tax payments

The Budget also sets out plans to introduce more regular tax payments from April 2029 for taxpayers who make Payments on Account under Self Assessment.

Currently, many taxpayers pay their tax in instalments on 31 January and 31 July, with a balancing payment where necessary. Moving towards more regular payments should bring tax collection closer to when income is earned, but it will also require affected taxpayers to manage their cash flow differently.

For landlords and sole traders, this means keeping a closer eye on income, expenditure and money set aside for tax throughout the year. While changing payment dates does not automatically increase the tax liability, it could affect the funds available for mortgage payments, maintenance and other business costs.

The change sits alongside Making Tax Digital for Income Tax, which introduces digital record-keeping and quarterly reporting for qualifying landlords and sole traders. Although quarterly reporting is separate from the timing of tax payments, both developments underline the importance of maintaining accurate, up-to-date financial records.

Trading allowance increases to £3,000

One positive announcement is the increase in the trading allowance from £1,000 to £3,000, effective from 6 April 2027.

The allowance can simplify the tax treatment of qualifying small amounts of trading and miscellaneous income, helping people who earn modest sums from freelance work or other additional activities. The associated Self Assessment reporting threshold will also increase to £3,000.

However, landlords should be aware that the trading allowance does not generally apply to rental income, and there is no similar increase announced for the property allowance, which will remain at £1,000. It will therefore provide little direct relief against the increase in tax on property profits.

What should landlords do now?

With further changes approaching, landlords should review their expected profits, assess the effect of higher tax rates and ensure they have appropriate systems for tracking income and expenses. Those affected by Making Tax Digital should also check their reporting obligations and prepare for the move to digital record-keeping.

Our advice is to plan ahead. Understanding the impact of the Budget on your rental profits and future tax payments can help you make informed decisions about your property portfolio and avoid unnecessary cash-flow pressures.

If you are a landlord or sole trader, we would be happy to speak with you to understand how the announcements may affect your individual circumstances.