Recent tax changes are affecting UK landlords
Successive governments have introduced a range of tax and regulatory changes affecting residential landlords. Alongside higher borrowing costs, many property owners are also preparing for the introduction of the Renters' Rights Act, proposed minimum EPC standards, selective licensing schemes and continued delays within the court system for possession claims.
While these changes will not affect every landlord in the same way, they all contribute to increasing the cost and complexity of owning residential property. As a result, many landlords are reviewing whether their current ownership structure remains the most tax-efficient for the future.
How will Section 24 mortgage interest relief affect landlords?
One of the biggest tax changes for residential landlords continues to be the restriction on mortgage interest relief, commonly known as Section 24.
Instead of deducting mortgage interest and other finance costs from rental income before calculating tax, landlords now receive a basic rate tax reduction. This means higher and additional rate taxpayers may pay tax on profits they have not actually received.
In some cases, the rules can also increase adjusted income for other tax purposes, potentially affecting:
- High Income Child Benefit Charge
- Personal Allowance withdrawal
- Student Loan repayments
- Tax-free childcare entitlement
- Personal Savings Allowance
For landlords with significant borrowing, the impact on overall tax liabilities can be substantial.
New property income tax rates from 6th April 2027
One of the most significant forthcoming changes is the introduction of separate, higher tax rates for property income from 6th April 2027.
For many landlords, this will mean paying more tax on rental income than under the current income tax system. The new rates will apply to taxable property income before residential finance costs are taken into account, making it even more important to understand how the changes could affect your overall tax position.
Can changing property ownership reduce your tax bill?
How a property is owned can have a significant impact on the amount of tax payable.
For married couples and civil partners, reviewing ownership arrangements may create opportunities to make better use of both individuals' tax allowances and income tax bands. Depending on your circumstances, changing the way rental income is shared could result in meaningful tax savings.
Joint ownership rules can be complex, particularly where beneficial ownership differs from legal ownership, so professional advice should always be sought before making any changes.
Should investment property be bought as a limited company?
Many landlords are now considering whether a limited company could provide a more tax-efficient way to own investment properties. Potential advantages include:
- Full tax relief for mortgage interest.
- Corporation tax rates that may be lower than personal income tax rates.
- Greater flexibility over when profits are extracted.
- Exemption from Making Tax Digital for landlords.
However, incorporation is not the right solution for everyone. There can be Capital Gains Tax, Stamp Duty Land Tax and future exit planning considerations that should all be carefully assessed before transferring existing properties into a company structure.
What the furnished holiday let tax changes mean for property owners and landlords
The Furnished Holiday Let tax regime ended on 6th April 2025 for individuals.
Although transitional reliefs remain available in some circumstances, owners of former furnished holiday lets should review how the changes affect future tax planning, capital allowances and any plans to sell or restructure their property holdings. Read more in our blog here: lwaltd.com/blog/abolishment-of-tax-advantages-for-furnished-holiday-lettings
Capital Gains Tax planning for landlords
Although Capital Gains Tax reliefs have become more limited in recent years, there are still legitimate planning opportunities available depending on individual circumstances. These may include:
- Transfers between spouses or civil partners.
- Principal Private Residence relief where applicable.
- Certain trust arrangements.
- Estate planning strategies.
Planning ahead before selling investment property can often help reduce the amount of Capital Gains Tax payable.
Recent Stamp Duty and inheritance tax changes for property investors
Recent increases to the Stamp Duty Land Tax surcharge on additional residential properties have increased purchase costs for many landlords.
Alongside this, changes to inheritance tax reliefs affecting business and agricultural property may also influence wider estate planning for some property owners and families.
Reviewing your tax position before buying, selling or passing on property is becoming increasingly important.
When will Making Tax Digital apply to landlords?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is now being introduced in phases.
Landlords with qualifying gross property income will be required to keep digital records and submit quarterly updates to HMRC. The rollout will apply:
- From 6th April 2026 for landlords with gross property income above £50,000.
- From 6th April 2027 for those with gross property income above £30,000.
- From 6th April 2028 for those with gross property income above £20,000.
Preparing early will make the transition much smoother and help avoid unnecessary disruption.
LWA can help Landlords with property tax planning
The tax rules affecting landlords have become increasingly complex, and with further changes due from 6th April 2027, now is a sensible time to review your position.
Whether you're considering restructuring your property portfolio, reviewing ownership arrangements, preparing for Making Tax Digital or planning a future property sale, taking professional advice early can help you make informed decisions and potentially reduce your future tax liabilities.
At LWA, we advise landlords, property investors and property businesses across Greater Manchester, Cheshire and beyond on all aspects of property taxation.
If you'd like to discuss how any of the changes covered in this article could affect your circumstances, Nickie Antley-Slater, Tax Manager at LWA, and our experienced tax team would be pleased to help.
Call us on 0161 905 1801 in our South Manchester office or 01925 830 830 for our Warrington branch, or you can email your query to mail@lwaltd.com with ‘Property tax query’ in the subject header.