Budget 2026 Tax Changes: What Landlords, Sole Traders and Company Owners Need to Know

Budget 2026 was delivered on 28 October 2026. The announcements most relevant to landlords, sole traders and limited company owners include higher Income Tax rates on property and savings income, an increase in the Trading Allowance and changes to plant and machinery capital allowances.

Most of the changes discussed below do not apply immediately. The replacement property and savings rates are intended to take effect from 6 April 2027 and require further legislation through Finance Bill 2026-27.

The earlier official framework provided for 2027/28 property and savings rates of 22%, 42% and 47%. Budget 2026 subsequently announced replacement rates of 24%, 44% and 49%, to be introduced through Finance Bill 2026-27.

The replacement rates are intended to take effect from 6 April 2027. They should therefore be described as announced future rates rather than rates applying to income arising in 2026/27.

What changed in Budget 2026?

Before Budget 2026, official documents showed planned property and savings rates of 22%, 42% and 47% for 2027/28. Budget 2026 announced that these would be replaced by rates of 24%, 44% and 49% before the earlier rates took effect.

The current published position is:

• Main non-savings, non-dividend and non-property income: 20%, 40% and 45% for 2026/27, remaining at 20%, 40% and 45% for 2027/28.
• Savings income: 20%, 40% and 45% for 2026/27, with rates of 24%, 44% and 49% announced for 2027/28.
• Property income: no separate property rates for 2026/27, with rates of 24%, 44% and 49% announced for 2027/28.
• Dividend income: 10.75%, 35.75% and 39.35% for both years.

The applicable rate depends on the taxpayer's total taxable income, available allowances and reliefs, income mix, rate bands and UK jurisdiction. It does not mean that all income is taxed at a single percentage.

For 2026/27 and 2027/28, the published main-rate taxable-income bands are:

• £1 to £37,700: basic rate;
• £37,701 to £125,140: higher rate; and
• more than £125,140: additional rate.

The standard Personal Allowance is £12,570. It is reduced by £1 for every £2 of adjusted net income above £100,000 and is normally eliminated when adjusted net income reaches £125,140. Scottish rates and bands differ for relevant non-savings income.

What Budget 2026 means for landlords

New property income tax rates from April 2027

For 2026/27, property income continues to be taxed without a separate set of property rates.

From 6 April 2027, the government intends the following separate rates to apply:

• 24% property basic rate;
• 44% property higher rate; and
• 49% property additional rate.

The UK government's announced property rates cover England, Wales and Northern Ireland. The government has also provided the devolved governments of Scotland and Wales with the ability to set property-income rates in line with their existing Income Tax powers. The applicable 2027/28 position should therefore be checked before finalising a calculation.

Any projection still using the previously announced 22%, 42% and 47% property rates should be updated.

Property Allowance and Rent a Room relief

The current Property Allowance is £1,000. Where the relevant conditions are met, an individual can use the allowance instead of deducting actual property expenses. The precise restrictions should be checked before making a claim.

The Rent a Room threshold is £7,500 a year for qualifying furnished accommodation in an individual's home. It is reduced to £3,750 where the income is shared with another person.

The Property Allowance and Rent a Room relief are separate provisions with different conditions. A taxpayer should not assume that both can be claimed against the same income.

Residential property finance costs

Individual residential landlords generally receive relief for eligible finance costs through a basic-rate tax reduction rather than deducting those costs in full when calculating rental profit.

Under the existing calculation, the reduction is based on the lower of:

• eligible finance costs, including qualifying amounts brought forward;
• property-business profits after relevant losses; and
• adjusted total income above the Personal Allowance.

The reduction cannot create an Income Tax repayment. Unused finance costs may be carried forward where the restriction results from the property-profit or adjusted-total-income limits.

Earlier government technical material stated that the reduction would be linked to the separate property basic rate from April 2027. That material used the then-planned rate of 22%.

Budget 2026 has since announced a property basic rate of 24%. The enacted Finance Bill provisions and updated HMRC guidance should therefore be checked before relying on a precise 2027/28 finance-cost calculation.

Illustrative landlord tax calculation

Assume a landlord has:

• rental profit of £20,000;
• no other income;
• the full £12,570 Personal Allowance;
• no restricted finance costs or property losses; and
• all taxable property income falling within the basic-rate band.

Illustrative 2026/27 calculation

• Rental profit: £20,000
• Personal Allowance: £12,570
• Taxable property income: £7,430
• Tax at 20%: £1,486

Illustrative 2027/28 calculation using the announced rate

• Rental profit: £20,000
• Personal Allowance: £12,570
• Taxable property income: £7,430
• Tax at 24%: £1,783.20

Illustrative increase: £297.20

This is a simplified illustration, not an HMRC calculation. It should not be applied without adjustment where the landlord has other income, a reduced Personal Allowance, property losses, jointly owned property or restricted residential finance costs.

What the new Income Tax rates mean for savers

From 6 April 2027, the announced savings rates are:

• 24% savings basic rate;
• 44% savings higher rate; and
• 49% savings additional rate.

These rates are intended to apply across the UK. For 2026/27, the published savings rates remain 20%, 40% and 45%.

The starting rate for savings remains 0%, with a maximum starting-rate band of £5,000. The amount available reduces as other taxable income above the Personal Allowance increases.

The published Personal Savings Allowance is:

• £1,000 for a basic-rate taxpayer;
• £500 for a higher-rate taxpayer; and
• £0 for an additional-rate taxpayer.

Interest earned within a qualifying ISA is not normally subject to Income Tax. The treatment of savings outside an ISA depends on the taxpayer's total income, allowances and applicable rate band.

Dividends and limited company owners

Budget 2026 did not announce another increase in personal dividend tax rates for 2027/28.

The published rates for 2026/27 and 2027/28 are:

• 10.75% dividend ordinary rate;
• 35.75% dividend upper rate; and
• 39.35% dividend additional rate.

The Dividend Allowance is £500.

The ordinary and upper dividend rates rose on 6 April 2026. The additional rate remained at 39.35%.

Dividend tax and Corporation Tax are separate

A limited company pays Corporation Tax on its taxable profits. A shareholder may then have a personal Income Tax liability on dividends paid by the company.

The current Corporation Tax rates are:

• 19% small-profits rate where profits are £50,000 or less;
• 25% main rate where profits exceed £250,000; and
• marginal relief where profits fall between those limits.

The profit thresholds can be proportionately reduced for short accounting periods and according to the number of associated companies.

Company owners should not consider dividends in isolation. Salary, employer's National Insurance, pension contributions, other personal income, company profits and distributable reserves can all affect the result.

Dividends must be supported by sufficient distributable profits and properly authorised and documented.

Capital allowance changes

Budget 2026 announced two changes affecting qualifying plant and machinery expenditure:

• the main-rate first-year allowance is intended to increase from 40% to 50% for qualifying expenditure incurred from 1 January 2027; and
• the main-rate writing-down allowance is intended to fall from 14% to 12% for chargeable periods beginning on or after 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.

A hybrid writing-down rate will apply where a chargeable period begins before and ends on or after the relevant commencement date. The government intends to introduce the changes through Finance Bill 2026-27.

The Annual Investment Allowance and full-expensing rules may provide different treatment for qualifying expenditure. The 50% first-year allowance should not automatically be assumed to be the most beneficial or only available claim.

What Budget 2026 means for sole traders

The published main Income Tax rates remain 20%, 40% and 45% for 2026/27 and 2027/28.

These are the main rates for relevant income in England, Wales and Northern Ireland. Scottish taxpayers have separate Scottish rates and bands for relevant non-savings income.

Trading Allowance to increase to £3,000

From 6 April 2027, the government intends to increase the Trading Allowance from £1,000 to £3,000.

The Income Tax Self Assessment reporting threshold for trading income is also intended to rise to £3,000 from that date. The changes are to be introduced through Finance Bill 2026-27.

Where gross income exceeds the allowance, an eligible taxpayer may generally choose between:

• deducting the Trading Allowance instead of actual expenses; or
• calculating taxable profit under the normal rules using allowable expenses and applicable capital allowances.

The allowance cannot be used to create a trading loss. Restrictions also apply in certain circumstances, including some income received from connected parties.

The proposed £3,000 Self Assessment reporting threshold should not be confused with:

• the VAT registration threshold;
• taxable business profit;
• the MTD qualifying-income threshold; or
• an exemption from maintaining adequate business records.

Changes to the use of allowances and reliefs

From April 2027, the Income Tax calculation rules are intended to require the Personal Allowance and certain other reliefs to be set first, where possible, against income that is not property, savings or dividend income.

This commonly includes employment income, trading profit and pension income.

If the allowances exceed that income, the remaining amount can be applied to property, savings or dividend income as permitted by the revised rules. The result will depend on the individual's complete mix of income and available reliefs.

A sole trader who also receives rental profit, savings interest or dividends may therefore require a complete Income Tax calculation rather than separate calculations for each source.

Making Tax Digital: check when you must join

MTD for Income Tax is separate from the Budget 2026 property and savings rate changes.

A qualifying sole trader or landlord must use MTD for Income Tax where the relevant conditions apply and qualifying income is:

• over £50,000 for 2024/25, requiring entry from 6 April 2026;
• over £30,000 for 2025/26, requiring entry from 6 April 2027; or
• over £20,000 for 2026/27, requiring entry from 6 April 2028.

Qualifying income is broadly total gross income before expenses from self-employment and property sources. It is not the same as taxable profit, accounting profit or VAT turnover. Work out your qualifying income for Making Tax Digital for Income Tax.

A person within MTD must use compatible software to:

• create, store and correct digital records;
• send the required quarterly updates to HMRC; and
• submit their tax return digitally.

Quarterly updates are summaries of income and expenses, not separate tax returns.

For 2026/27, there are no penalties for missing a quarterly-update deadline. However, taxpayers within MTD must still maintain digital records and send the required quarterly updates before submitting their tax return. This is a penalty easement, not an exemption from MTD.

Budget 2026 also announced that taxpayers joining MTD for Income Tax in April 2027 will not receive penalty points for late submission of their first four quarterly updates for 2027/28. This separate easement does not remove the digital-record or quarterly-update requirements.

Key Budget 2026 tax dates

6 April 2026

• Dividend ordinary and upper rates increased to 10.75% and 35.75%.
• The dividend additional rate remained at 39.35%.
• MTD for Income Tax became mandatory where the relevant conditions were met and qualifying income for 2024/25 exceeded £50,000.

28 October 2026

• Budget 2026 was delivered.
• The main Budget and supporting tax documents were published.

1 January 2027

• The proposed 50% main-rate first-year capital allowance is intended to become available for qualifying expenditure, subject to the Finance Bill measure being enacted.

1 April 2027

• The proposed 12% main-rate writing-down allowance is intended to begin for Corporation Tax chargeable periods, subject to transitional and legislative provisions.

6 April 2027

The following measures are intended to take effect:

• property rates of 24%, 44% and 49%, subject to the applicable jurisdiction;
• UK-wide savings rates of 24%, 44% and 49%;
• revised ordering rules for allowances and reliefs;
• a £3,000 Trading Allowance;
• a £3,000 trading-income Self Assessment reporting threshold;
• MTD entry for taxpayers with qualifying income over £30,000 in 2025/26; and
• a 12% main writing-down allowance for Income Tax chargeable periods.

What should you review before April 2027?

Landlords

• Recalculate projected rental profits using the announced property rates.
• Review brought-forward property losses.
• Check residential finance costs and unused finance costs carried forward.
• Consider whether the revised allowance-ordering rules affect the total liability.
• Test MTD eligibility using qualifying gross income rather than rental profit.
• Confirm the applicable property-income rates for the taxpayer's UK jurisdiction.

Sole traders

• Compare the proposed £3,000 Trading Allowance with actual allowable expenses.
• Do not confuse the £3,000 reporting threshold with the MTD, VAT or taxable-profit thresholds.
• Review MTD eligibility for 2027/28.
• Consider the capital-allowance changes before committing to major equipment purchases.

Limited company owners

• Review salary, dividends, pension contributions and other personal income together.
• Confirm that dividends are supported by sufficient distributable reserves.
• Check whether associated companies reduce the Corporation Tax profit thresholds.
• Review planned plant and machinery expenditure against the proposed capital-allowance changes.