Every year the governments set budgets that outline future taxation, spending, and economic priorities. Therefore landlords in Scotland, from small “accidental” landlords with one property to larger investors with multi-unit portfolios will face potential changes to tax and property transaction costs. These annual budgets can and do change policies which will affect profitability, investment incentives, and have a real knock on effect to the wider rental market.
In Scotland, this picture is particularly complex because certain tax powers are devolved to the Scottish Government at Holyrood (such as income tax on individuals and council tax), while others (like some UK tax changes) may still affect landlords depending on where their rental properties are located. The differences between UK and Scottish budgets are based on each region’s housing policy goals, and as such will mean landlords must navigate overlapping priorities depending on the region of their properties.
- Income Tax and Rental Profitability in Scotland
One of the most immediate effects which are included in the most recent government budget is the taxation on landlord’s rental income.
UK vs Scottish Tax Powers
The UK Autumn Budget 2025 introduced a 2 percentage point increase in income tax rates on rental property income from April 2027 in England. A move designed to tax “unearned” income more in line with earned income and raise significant revenue for public spending. This means that for landlords under the UK system (i.e., properties outside Scotland), the tax on rental profits will increase.
However, income tax is devolved in Scotland, which means the Scottish Parliament at Holyrood decides its own income tax rates and thresholds. At the moment this offers both uncertainty and opportunity for landlords located in Scotland. While the UK Chancellor’s change applies elsewhere in the UK, Scotland has not automatically adopted that increase but it could decide to mirror or diverge from it, in its own budgets. Scotland have not issued the 2% landlord tax in Scotland in the January 2026 budget but have also not ruled out future tax increases specifically for private landlords in Scotland, so this should be taken into consideration when assessing the viability of future purchases. Any rise to the taxation within Scotland would take effect from 2027/28.
Scottish Budget 2026 Adjustments
The most recent Scottish Budget which was delivered in January 2026 raised basic and intermediate income tax thresholds by about 7.4%, offering modest tax relief for the lowest earners, though this has limited impact on property owners per say unless they are also lower-income taxpayers. The thresholds for higher and top rates remain frozen until at least 2029, which creates a “fiscal drag”: over time, inflation pushes taxpayers (including landlords) into higher tax bands and potentially increases their tax bills even without explicit tax rate rises.
For landlords, this means that their rental income taxed at higher bands may result in a larger share of profit being taxed more heavily. Especially if Scottish tax bands remain steeper than in other parts of the UK.
Landlords with Mixed Portfolios
Another complicating factor is for landlords who reside in Scotland but own properties elsewhere in the UK. They will see the UK tax changes apply to their non-Scottish properties (like England or Wales). This split can create administrative complexity in tax planning and compliance.
- Transactional Rise with LBTT, ADS and MDR
Over and above annual income tax, landlords also face transactional costs when buying (and sometimes selling) properties.
Land and Buildings Transaction Tax (LBTT)
In Scotland, the equivalent of Stamp Duty Land Tax (SDLT) is Land and Buildings Transaction Tax (LBTT). While broader LBTT rates have remained stable, the Additional Dwelling Supplement (ADS) which is a surcharge on second homes, buy-to-let properties, or homes bought under company names, was increased from 6% to 8% in the Scottish Budget 2025. There was no additional ADS increase in the January 2026 budget.
For a typical rental property purchase, ADS adds thousands of pounds to the upfront cost, making purchasing a property more expensive and reducing potential investment returns. Higher entry costs can deter small and mid-size landlords, slow investment activity, and discourage reinvestment into existing portfolios. This punitive ADS is keeping investors away from the cheapest rental properties as it is not viable for them to purchase with all additional taxes, which is in turn driving the rents up for tenants, as the entry purchase price point for a private landlord is higher than pre 2025.
Although some argue these taxes help level the playing field or support broader housing policy goals, many in the property sector say they contribute to higher purchase prices and lower supply by pushing landlords out or discouraging new entrants.
Multiple dwelling relief remained untouched in the 2026 budget, which was a welcome relief for investors as this has been removed in other areas in the UK.
- Council Tax and High-Value Properties
From April 2028, two new council tax bands will apply to properties worth over £1 million: band I (for £1m–£2m) and band J (above £2m), with multipliers yet to be confirmed. This means landlords with higher-valued portfolios should expect increased annual costs, and importantly to note this will be whether or not the properties are tenanted.
This aligns with broader Scottish government efforts to make local taxation more progressive. However for landlords with larger portfolios, it adds another fixed annual expenditure to factor into profitability.
Council tax changes in the Scottish Budget do influence landlords, especially those with higher-value properties which again will have a knock on effect to the rental sector as a whole.
- Rental Supply and Rental Pressures
Economic statistics and industry bodies have warned that repeated tax hikes and increased costs could shrink the supply of rental homes in the private rented sector. With profitability squeezed by tax, rising operating expenses/compliance costs and higher transactional costs, some landlords may choose to sell properties rather than hold on to them. Reduced supply could then push up rents, exacerbating housing shortages. Indeed the homeless figures reported on the government website have significantly increased in the last 12 months.
Furthermore, restrictions on mortgage interest tax relief (a UK-wide change that predates recent budgets) already limits the amount of interest landlords can deduct for tax purposes with properties in their own name, which further tightens profit margins.
Rent Controls and Tenant Protections
In Scotland, part of the broader policy includes the Housing (Scotland) Act’s rent control measures and tenant protections aims to restrain rent growth and improve security. While these policies support tenant stability, they can restrict landlords’ ability to adjust rents with market conditions, potentially discouraging investment in cheaper properties with low margins or accelerating exits from the rental market. This in turn has a knock on effect on tenants who have no option but to go for more expensive properties due to a shortage of cheaper properties.
Even without rent caps directly tied to taxation, the already regulated environment adds cost and complexity to operating rental housing. However, keeping a tight control of costs vs. profitability will maximise the investment for landlords.
- Long-Term Market Signals and Investment Decisions
Budgets will send important market signals. For landlords, these can signal unpredictability and uncertainty.
This is because landlords generally make long-term investment decisions based on expected returns over years or decades. Therefore uncertainty about whether Scotland will mirror UK income tax increases and frequent tax changes can make planning harder. The potential for future property income tax increases beyond 2027 is a common concern cited by industry groups.
The Impact on Different Landlord Types:
- Accidental landlords (those who inherited property or rent out a former home) often have thin margins; tax increases may push these owners to sell.
- Professional or corporate landlords may restructure through limited companies or portfolios to manage tax liabilities more efficiently, but this often adds complexity and cost.
- High-value property owners face additional council tax bands, making luxury portfolios relatively less attractive.
However the changes that are either already in effect or have been officially confirmed for future dates are:
- Land and Building Transaction Tax (LBTT) and the Additional Dwelling Supplement Tax remains the same
- New high value Council Tax Bands (Band I and J) will be introduced from 1st April 2028 for homes valued over £1 million.
- Second Homes: Regulations are expected to be laid to remove the cap on council tax premiums for second homes from 1st April 2026, which will allow councils to charge double rates on empty properties.
In the short-term, higher tax liabilities on rental profits, increased transaction taxes like ADS, and new council tax bands make the financial landscape more challenging for many landlords. Over time, these changes could influence investment decisions, rental supply, and housing affordability. However, restructuring your portfolio and tightly managing cash flow may significantly increase the profitability in your portfolio.
For landlords operating in Scotland today, staying informed about both UK and Scottish budgets and engaging with financial advisors for early tax planning and budgeting cash flow is essential. The evolving environment means tax planning, portfolio strategy, and understanding regulatory change are now as central to successful property investment as location or rental demand.
