Tax Changes Hitting Landlords Harder in 2026–28
The tax treatment of UK rental property is changing in stages between 2026 and 2028. None of the measures is a surprise in isolation. Taken together, they alter how individual landlords report income, how much tax they pay on rental profit, and, for higher-value homes in England, what they pay each year simply for owning the asset.
This article sets out what has already taken effect, what is legislated for 2027 and 2028, and what investors and supported living providers should weigh up before they change strategy. It is a briefing, not a forecast of any particular portfolio.
A three-year stack, not a single Budget line
For more than a decade, personally held rental property has been treated less favourably than it once was. Finance-cost relief was restricted under Section 24. Stamp duty on additional dwellings rose to a 5% surcharge. Capital gains annual exempt amounts were reduced. The furnished holiday lettings regime ended from April 2025, so short-stay properties now sit inside ordinary residential property income rules.
Autumn Budget 2025 then added a further layer, now written into Finance Act 2026:
Making Tax Digital for Income Tax became mandatory from 6 April 2026 for many landlords and sole traders.
Separate, higher rates of income tax on property income take effect from 6 April 2027 in England, Wales and Northern Ireland.
A High Value Council Tax Surcharge on English homes valued at £2 million or more is due from April 2028, based on a 2026 valuation snapshot.
HMRC’s impact note estimates that by 2029–30 around 2.4 million landlords will pay more tax because of the property-income rate change. The House of Commons Library briefing sets out the yield and the Scotland/Wales position. The Office for Budget Responsibility has also noted a modest pass-through into rents, a point later cited in NRLA member research. That is the policy backdrop. The practical question for investors is how the stack lands on their structure: personal name, partnership, or limited company.
What is changing, and why it bites
1. Making Tax Digital from April 2026
Making Tax Digital for Income Tax is a reporting change, not a new tax rate. From 6 April 2026, individuals whose qualifying income from property and self-employment exceeded £50,000 in the relevant base year must keep digital records and send quarterly updates to HMRC through compatible software, then a final declaration.
The threshold is designed to fall:
April 2026: over £50,000 (HMRC collection)
April 2027: over £30,000
April 2028: over £20,000 (as currently scheduled)
Qualifying income is gross, not profit. Joint owners report their own share. The Low Incomes Tax Reform Group has a clear landlord-specific walkthrough of joint lets and mixed income. Companies are outside this Income Tax regime; directors who also let property in their own name may still be in scope as individuals.
The first quarterly deadline for 2026/27 fell on 7 August 2026. HMRC has begun signing up taxpayers who should already be in the system. The cost here is time, software and process, plus the risk of incomplete records when the final declaration is due.
2. Separate property income tax rates from April 2027
From the 2027/28 tax year, rental profit held personally will no longer be charged at the ordinary income tax rates that apply to employment and trading income. Finance Act 2026, sections 6 and 7, and HMRC’s technical note set distinct property rates for England, Wales and Northern Ireland:
BandOrdinary income tax (for comparison)Property income from 6 April 2027Basic rate20%22%Higher rate40%42%Additional rate45%47%
Two further design points matter more than the two-percentage-point headline.
First, relief for residential finance costs under Section 24 will be given at the new property basic rate of 22%. Landlords do not recover interest at their marginal rate. A higher-rate landlord still pays 42% on taxable rental profit and receives only a 22% tax credit on qualifying finance costs. The rate rise and the restricted relief therefore move in the same direction.
Second, the ordering of the personal allowance is changing. From April 2027, allowances and certain reliefs are applied to employment, trading and pension income before they are applied to property, savings and dividend income. An investor with a salary that already uses up the personal allowance may find that rental profit is taxed in full at the property rates.
Scotland sets its own income tax on non-savings, non-dividend income and is carved out of the England, Wales and Northern Ireland property-rate schedule (Commons Library CBP-10450). The UK government has said it will engage with the Scottish and Welsh governments on equivalent powers. Investors with property in more than one nation should not assume a single set of rates.
The property allowance and the Rent a Room scheme are unchanged, as confirmed in the same technical note.
3. Company landlords: a different set of pressures
The new property rates apply to individuals and partners, not to corporation tax on a company’s rental profit. That does not mean company structures are untouched.
From 6 April 2026, the dividend ordinary rate rose to 10.75% and the dividend upper rate to 35.75%. The additional dividend rate remains 39.35%. Investors who extract profit from a close company as dividends therefore face a higher personal tax cost from 2026/27, even if the company’s corporation tax line is unchanged.
Incorporation itself has also become easier to get wrong. Transferring property into a company is generally a disposal at market value for capital gains tax. Incorporation Relief under section 162 can defer that gain where a genuine business is transferred wholly or partly for shares. From 6 April 2026 the relief must be claimed on the Self Assessment return. It is no longer automatic. A missed claim can create a CGT bill without sale proceeds. See also HMRC’s HS276 Incorporation Relief helpsheet. Stamp duty land tax (or the Scottish and Welsh equivalents) can still arise on the transfer, including the additional-dwellings surcharge.
HMRC has also restated that holding one or two lets as a passive investment is not automatically a “business” for relief purposes. Hours spent on the portfolio are relevant, but they are not a rigid pass/fail test.
4. High Value Council Tax Surcharge from April 2028
From April 2028, owners of residential property in England valued at £2 million or more at a 2026 Valuation Office snapshot will pay an annual surcharge on top of council tax. The GOV.UK factsheet and House of Commons Library CBP-10869 set out the published bands at announcement:
£2.0m to £2.5m: £2,500
£2.5m to £3.5m: £3,500
£3.5m to £5.0m: £5,000
Over £5.0m: £7,500
The charge is intended to sit with the owner, not the occupier. Social housing is expected to sit outside the scope, subject to the final design after consultation. Fewer than 1% of English homes were expected to be affected. For investors with high-value stock in London and the South East, including some supported living or HMO assets that still meet the residential definition, it is an extra holding cost from 2028, independent of rental profit.
Revaluations are planned on a five-year cycle. Draft lists and appeal rights will matter as much as the headline bands.
5. The 2025 change that still shapes 2026–28 accounts
The furnished holiday lettings regime ceased from April 2025. HMRC PIM4165 sets out what was withdrawn. Properties that previously escaped the finance-cost restriction, claimed plant and machinery capital allowances on furnishings, treated the activity as relevant earnings for pension relief, or accessed trading-style CGT reliefs are now taxed as ordinary residential lettings. Related pages: PIM4105 and PIM4190 on jointly owned property.
That repeal is already in force. Its cash effect appears in 2026, 2027 and 2028 tax computations: Section 24 applies, replacement of domestic items relief replaces capital allowances on most furnishings, and a sale is more likely to be a standard residential CGT event.
6. What the measures do not do
Balance requires saying what Budget 2025 did not introduce. There was no National Insurance charge on rental profit. There was no new surcharge on standard residential CGT rates in that Budget. The £1,000 property allowance remains. Reporting of property income still sits inside Self Assessment or Making Tax Digital; only the rates and the digital process change. Professional summaries of what was left unchanged include Crowe’s property taxes update and Which?’s Budget explainer.
That does not lighten the combined effect of restricted finance-cost relief, higher property rates, digital filing, and, for some owners, the 2028 surcharge. It does mean investors should model the rules that exist, not the rumours that did not become law.
What investors and providers should consider
Know which entity holds the asset.
The 2027 property rates and Making Tax Digital attach to individuals. A supported living scheme held in a limited company is on a different tax track (corporation tax, then extraction). Mixing personal BTL with a company-held care or supported living portfolio is common. Each sleeve needs its own numbers.
Model net yield after Section 24, not headline rent.
A two-point rate rise looks modest on a spreadsheet that still deducts mortgage interest in full. Under current law, interest is not deducted that way for residential property held personally. Run the 2027/28 computation with the 22% finance-cost credit and with the personal allowance applied to other income first. Firm-level worked notes include Azets and Property Tax Partners. Leveraged higher-rate landlords usually see a larger cash effect than basic-rate landlords with little debt.
Treat Making Tax Digital as an operations project.
Software choice, bank feeds, how jointly owned properties are split, and who signs quarterly updates all need to be settled before the next threshold drop in April 2027. Use HMRC’s step-by-step guidance and the LITRG landlord note. Supported living investors who also have personal rental income can cross the threshold even if the care scheme itself sits in a company.
Do not incorporate only to escape the 2027 rates.
A company can shelter rental profit at corporation tax rates, but incorporation can trigger CGT and stamp duty, relief now has to be claimed, and dividends became more expensive from April 2026. The “business” test for relief is a facts-and-evidence question. This is a structured tax and legal exercise, not a default response to a Budget table.
Watch England high-value banding if the stock could clear £2 million.
The surcharge is an ownership tax, not an income tax. Empty, tenanted or used for supported living, the question is still whether the dwelling is in scope under the consultation design. Check the outcome, the draft list when published, and appeal windows. Do not assume an existing council tax band decides the surcharge.
Former holiday-let owners should rebuild their expense map.
Capital allowances claimed under the old FHL rules do not continue for new expenditure in the same way (PIM4165). Replacement of domestic items relief, repairs versus improvements, and finance-cost restriction now follow the standard residential code.
Rent and supply are linked, but they are not a strategy.
NRLA member polling in 2026 found a large share of landlords planning rent increases or sales in response to the 2027 rate rise. The OBR’s Budget costing also allowed for some rent pass-through. That is useful context for market conditions. It is not a reason to assume every tenancy can absorb a tax increase, particularly where Local Housing Allowance is frozen or where supported living fees are set by contract with a provider or local authority.
Keep regulation in the same conversation as tax.
The Renters’ Rights framework, energy performance policy, and commissioning standards for supported living all affect void risk, capex and exit timing. A tax-only decision that ignores vacant possession rules or operator covenants is incomplete.
Finance Act 2026 and the 2028 surcharge timetable
The property-income rates are not a proposal. They were announced at Autumn Budget 2025 and enacted in Finance Act 2026, with 22%, 42% and 47% specified for 2027/28. Making Tax Digital for the first cohort is already live. The High Value Council Tax Surcharge remains on an April 2028 start, with design detail taken through consultation in 2026 and a Valuation Office exercise tied to 2026 values.
For SHPC’s typical reader, the next 18 months are therefore about administration and modelling, not waiting for another Budget to undo the rate schedule. Spring fiscal events have recently been framed as updates rather than a second major tax-raising round. That can change. Until it does, the working assumption should be: digital reporting now, higher personal tax on rental profit from April 2027, and an extra annual charge on the most expensive English homes from April 2028.
Supported living and social housing investors should also separate policy risk that is tax from policy risk that is commissioning. Fee mechanisms, void cover and operator covenant quality still drive returns in that sector more than a two-point income tax change on a personally held BTL. The mistake is to treat the two markets as if they shared one tax outcome.
Landlords are not facing one new tax. They are facing a sequence: digital reporting in 2026, a separate and higher property-income schedule in 2027, and a high-value ownership surcharge in 2028, on top of Section 24, the FHL repeal, and a dividend-rate rise for those who use companies. The cash impact is uneven. It is heaviest for leveraged individual landlords whose other income already uses the personal allowance, and lightest for simple, low-debt, basic-rate cases that stay below the Making Tax Digital line for a little longer.
The useful response is not a rushed sale or a rushed incorporation. It is a clear picture of who owns what, which rules apply to each vehicle, and whether the net yield still supports the hold period after 2027/28 rates and 2028 holding costs.
👉 Want to understand how the 2026–28 tax and reporting changes could affect your portfolio strategy, including personally held lets and supported living structures? Connect with Shannon Hoang at SHPC to explore how we help investors and providers navigate these changes with clarity and confidence.
⚠️ Disclaimer: This article is for general information only and should not be relied upon as legal, financial, tax, or investment advice. Property investments carry risks, including changes to tax rates, reliefs, reporting duties and local taxation. Rules differ across England, Wales, Scotland and Northern Ireland and remain subject to legislation and HMRC guidance. Please seek professional advice tailored to your circumstances.
