There are many changes on the horizon for the Scottish rental market in 2026. It is important to understand the changes coming up to ensure you remain compliant. The market is changing frequently and you need to continue to proactively prepare your business for these changes. The most imminent changes are: Making Tax Digital, EPC Reform and Rent Cap Analysis.
Making Tax Digital:
One big change for landlords with properties in their own name, is Making Tax Digital. This is a UK Government initiative to move tax reporting from annual paper/online Self-Assessment to digital record-keeping and quarterly digital submissions of income and expenditure. As part of this initiative, using approved accounting software, such as Xero or Quickbooks, is mandatory. Landlords in this category have to submit quarterly returns to HMRC as well as an annual final declaration, which must be filed before 31st January the following year, which will replace the previous self-assessment tax returns.
This will be rolled out over a three year period. Every landlord earning £50,000 gross rental revenue, before expenses are deducted, will be required to submit Making Tax Digital quarterly returns from April 2026. Every landlord earning £30,000 gross rental revenue, before expenses are deducted, will be required to submit Making Tax Digital quarterly returns from April 2027. Every landlord earning £20,000 gross rental revenue, before expenses are deducted, will be required to submit Making Tax Digital quarterly returns from April 2028. It is important to note, salary, PAYE and pension payments do not count towards these thresholds.
Landlords who own properties via limited companies will be exempt from Making Tax Digital and will continue to pay corporation tax.
If you have a disability or extreme technical barriers you can apply to HMRC for exemption, however, this will only be granted in extreme cases and only if you can prove it.
If you fail to submit a quarterly return, or miss a deadline you will accrue penalty points and may get a fine. Quarterly returns may be rejected if there are errors or if they are submitted via unapproved software.
If you set reminders in your calendar and update your software at the end of each week, it should make it easy to keep on top of this accounting process.
Energy Performance Certificates Reform:
It has been proposed (but is not currently law) that from 31st October 2026 Energy Performance Certificates will be subject to reform. At the moment, energy performance certificates are valid for 10 years. From 31st October 2026 the validity of the certificates will drop to 5 years.
The focus for energy performance certificates is moving away from just assessing the performance of the heating system in the property and is shifting its focus to how much the heat is retained within the fabric of the building. This means that more priority will be given to assessing heat loss and prevention measures to minimise heat emissions from a building. A Heat Retention Rating (HRR) will be applied to energy performance certificates. Existing EPC’s which are valid before 31st October 2026 can still be used for new lets until 31st October 2027. A Heat Retention Rating needs to be a minimum of a Band C.
If this is passed as legislation, from 1st April 2028 new tenancies must meet this minimum HRR C standard. Existing tenancies would need to meet the new HRR standard by 2033.
Tips for reaching minimum Heat Retention Ratings as cheaply as possible are:
- 270mm loft insulation
- Draught Proof the property (Seal gaps, install weather seals)
- Hot water cylinder lagging (80mm jacket)
- Cavity Wall Insulation
- Solid Wall Insulation
- Floor Insulation
- Double/Triple Glazing for windows/doors
It is worth factoring this into your projected refurbishment costs for any new projects you are taking on over the next few months.
There will most likely be exemptions where the fabric of the building of some properties is not easy to adapt to the new measures, or is cost prohibitive.
There are many grants or loans available for energy measures on: https://energysavingtrust.org.uk/
Rent Cap Analysis, Housing (Scotland) Bill:
Rent caps generally succeed in reducing rental costs for existing tenants but often lead to severe long-term market distortions. Rent caps typically cause reduced housing supply, lower maintenance quality due to reduced available funds for maintenance, and increased rents in unregulated sectors. Tenants in rent control areas are less likely to move, meaning there is limited housing resources available to vulnerable tenants in those areas. Rent caps discourage investment from private landlords as if there is a significant increase in their costs, such as increased mortgage interest rates, the ability to recover these is reduced in rent cap areas. Investors may change strategy and convert the properties in those areas for other purposes e.g. commercial use or short term let to escape the rent cap restrictions.
The Rent Service Scotland (RSS) staff have started contacting letting agencies in the private rental sector as a bid to analyse the current market rents for setting rent caps, setting future LHA rates and for rent adjudication. This means that the analysis of the legislation changes outlined in the Housing (Scotland) Bill is underway.
It is important to keep rents affordable, while at the same time maintaining balance so that a landlord has funds to keep the compliance and repairs up to date.
While preparing your property business for the year ahead, it is important to be aware of the proposed changes and to budget appropriately for these changes coming up. Always speak to professionals in the industry that can help you with any areas of legislation you are not sure of.
