With costs continuing to rise in the UK, many landlords are looking for ways to cut expenses and boost profitability in 2026.
One of the biggest ongoing costs landlords face is their tax bill. Landlords pay tax at every stage of their investment - when purchasing property, throughout letting the property, and when they eventually sell the property. While we can all agree that paying our taxes is important, no one wants to pay more tax than is necessary.
In this article, we’ll explain how tax liability is calculated, what reliefs and allowances are available to landlords, and what steps you can take to reduce your tax bill in 2026.
How is landlord tax liability calculated?
First up, let’s quickly run through how a landlord’s tax liability is calculated. If you already know this, you can skip this section, but if you need a refresher, understanding the basics will make the rest of the article clearer.
Tax on rental income
To calculate how much tax is due on your rental income, you should:
- First, subtract your allowable expenses from your rental income to get your taxable rental profit.
- Next, add your rental profit to any other income you earn.
- Then, the final figure is taxed at your marginal tax rate (ie, basic rate, higher rate, or additional rate).
Individual landlords may also receive a 20% tax credit for mortgage interest.
Landlords who HMRC deem to be running a property business may also be required to pay Class 2 National Insurance.
What other taxes do landlords pay?
Stamp Duty
Landlords also pay tax when they buy or sell property. When buying residential property over a certain price in the UK, you must pay Stamp Duty Land Tax (SDLT), which is charged at a higher, additional rate if you already own another property.
Capital Gains Tax
And if you decide to sell your rental property? Then you will be liable to pay Capital Gains Tax on any increase in its value since you bought it.
Understand your tax position
Before you can begin looking for ways to reduce your tax liability, you first need to know where you’re starting from.
It’s important to understand your tax position at all times. Knowing where you stand with your taxes helps you to prepare for your next tax bill and supports long-term business planning. It also helps you to identify areas where there may be an opportunity to prevent overpaying or reduce your tax bill.
Key figures to review include:
- Rental profits (rental income minus allowable expenses).
- Allowable expenses vs non-allowable expenses.
- Capital allowances.
- Your personal tax bracket.
Now is also a good time to check if you meet the threshold for Making Tax Digital, which comes into effect this April. MTD requires all individual tax payers with a gross rental income over £50,000 to transition to digital record-keeping and tax submissions.
Specialist landlord software PaTMa Property Manager makes it easy to generate real-time performance reports showing income, expenses, and profit at both portfolio and property levels. It is user-friendly and compatible with MTD, helping you comply with the new laws and stay on top of your tax position throughout the year with ease.
Seven tips to help landlords reduce their tax bill in 2026
Claim all allowable expenses
Allowable expenses are the costs, defined by HMRC, that can be deducted from your rental income before tax is calculated. To be allowable, an expense must be incurred “wholly and exclusively” for the purpose of renting out the property.
Many landlords overpay on tax because they are simply not informed about what expenses they can and cannot claim for. Making sure that you claim all expenses that you are entitled to will reduce your total taxable income and lower your tax bill.
Typical allowable expenses include:
- Property repair and maintenance costs.
- Letting agent fees.
- Insurance.
- Gas and electricity safety checks.
- Accountant and solicitor fees.
- Mileage and travel for property visits.
- Service charges and ground rent.
- Utility bills (if you offer rent that is inclusive of bills).
Creating an organised system for storing receipts and recording expenses will help to make sure you don’t miss any. PaTMa’s Property Manager tool can be linked to your bank account to automate the process of recording and categorising expenses, helping to save you time and ensure you never miss a deductible expense.
Understand the difference between property repairs and improvements
The distinction between property repairs and improvements is important to get your head around, as these two expenses are treated differently for tax purposes.
In accounting, property repairs and maintenance are classed as revenue expenditure, while property improvements are capital expenditure. Revenue expenditure, like property maintenance, covers the costs required to keep a rental property in good working order. Capital expenditure, like property renovation, boosts the property’s long-term value.
Why is this important? Because revenue expenditure, like property repairs and maintenance, can be deducted as an allowable expense, whereas capital expenditure, like property renovations, cannot.
However, if you sell the property in the future, property renovations may qualify as an allowable expense when calculating Capital Gains Tax.
Partnerships and marriage allowance
If you are married or in a civil partnership, you may be able to make tax savings by dividing property ownership or forming a business partnership.
If you are a higher tax rate payer and your spouse is on a lower tax rate, or vice versa, you may be able to reduce your overall tax liability by allocating a higher percentage of property ownership to the lower tax rate payer.
The person who is a lower tax rate payer may also be able to apply for the Marriage Allowance, which allows them to transfer £1,260 of their Personal Allowance to their partner to help reduce their combined tax bill.
Or, if you and your spouse are both basic tax rate payers, you may be able to form a business partnership and divide rental profits between you to prevent either of you from moving into the higher tax rate band.
Speak to an accountant or tax specialist for tailored advice on what the most tax-efficient option is for your situation.
Consider forming a limited company
If you’re a private landlord, setting up a limited company (incorporating) could help you to make significant savings on tax. However, this option isn’t right for everyone, so it’s important to understand the pros and cons of incorporation so you can make an informed decision about whether it makes financial sense for you.
What are the benefits of incorporating?
- Tax relief on mortgage interest: The main benefit of incorporating is that it allows you to claim tax relief on mortgage interest, something private landlords haven’t been able to do since 2020.
- Potentially lower tax rates: Limited companies pay corporation tax at a rate of 19% - 25%, whereas private landlords on the higher tax rate can pay anywhere between 40% and 45%.
- Better financial and legal protection: If you’re renting out property as a limited company, you are not personally liable for any debts incurred, protecting your personal assets.
And the drawbacks?
- The cost of setting up: Any property you already own will need to be sold to your new limited company, which will incur Capital Gains Tax and Stamp Duty.
- Harder to access funds: Any profit you make belongs to the business, meaning you’ll either need to pay yourself a salary or declare dividends in order to access it.
- Tax on salary and dividends: You will need to pay personal income tax or dividend tax on any money you pay yourself from the company as a salary or dividends.
- Mortgage challenges: Limited company buy-to-let mortgages typically have higher rates, stricter criteria, and require larger deposits. You may also need to pay an early repayment fee if you’re switching an existing mortgage to transfer the property to your new limited company.
- Stricter compliance requirements: Running a limited company can be more time-consuming than operating as a private landlord, with greater responsibility and more statutory requirements to comply with.
Generally, setting up a limited company is best suited to landlords who are higher-rate taxpayers and own multiple properties. If you think it could work for you, speak to an accountant for advice on the best way to proceed.
Review your pension contributions
Increasing your pension contributions reduces your taxable income, which can help to keep you in a lower tax band and reduce the amount of tax due on your rental profits.
Use strategic planning to reduce Capital Gains Tax
Plan ahead to help reduce your Capital Gains Tax liability when you sell property in the future.
- Time the sale carefully: Selling during a tax year when your income is lower may reduce how much CGT you pay.
- Offset capital losses: If you have previously sold an asset at a loss.
- Use your CGT allowance: You only pay CGT on the figure above your annual CGT allowance.
- Claim Private Residence Relief: If the property was once your main home.
- Deduct allowable expenses: Like capital improvements, eg, renovations.
When combined, these strategies can significantly reduce the amount of tax due if you decide to sell your rental property in the future.
Be organised and timely with your tax returns
Late payments, errors, or underpaying tax can all trigger an HMRC investigation or financial penalty, so it pays to be organised with your tax returns!
With Making Tax Digital due to come into effect for many landlords this April, now is a good time to sign up for an MTD-compatible landlord software like PaTMa. Using the right tools will help you to stay compliant, avoid mistakes, and submit accurate and timely tax returns.
PaTMa can help you save time and money on your tax returns by:
- Automating the recording of rent receipts and expenses.
- Sending automatic reminders about upcoming tax deadlines.
- Generate tax return reports with a single click.
- Enabling easy, stress-free MTD submissions.
Designed specifically for landlords, PaTMa is user-friendly and designed to make tax and property management simpler and more efficient.
Book a demo or sign up for a free trial to see just how simple PaTMa is to use.
