Payments on Account Explained for Landlords (2026/27)
Last updated 23 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team
The short answer
Payments on account are advance paymentstowards next year’s tax, due in two instalments on 31 January and 31 July, each equal to half your last bill. They kick in when your tax bill tops £1,000 and under 80% was taxed at source. In your first year you pay the bill plus the first advance payment together — which is why it feels like 1.5×.
Almost every new landlord gets a nasty surprise the first January their rental profit pushes them into Self Assessment. The bill is far bigger than the tax they actually owe — because HMRC also asks them to pre-pay next year. Nothing has gone wrong; it is the payments-on-account system doing exactly what it is designed to do. This guide explains it plainly, shows the cash-flow with a worked example, and tells you how to reduce the payments when your income drops.
When you are caught: the two triggers
You make payments on account only if both of these are true:
| Trigger | Meaning for a landlord |
|---|---|
| Bill over £1,000 | Your Self Assessment tax for the year is more than £1,000 |
| Under 80% at source | Less than 80% of your tax was already collected (e.g. via a PAYE job), so most of the rental tax is still outstanding |
A landlord with a salary taxed under PAYE and a modest rental profit may escape because most of their tax is already deducted at source. A full-time landlord, or one with a large rental profit, almost always gets pulled in.
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Rental profit & tax calculator
Estimate the tax on your rental income for 2026/27
Result
- Taxable profit (rent − expenses)
- £11,200
- Income Tax at 40%
- £4,480
- Less mortgage interest credit (20%)
- − £1,000
- Tax due on this property
- £3,480
- Income after tax
- £7,720
Estimate based on verified 2026/27 UK rates. Informational only — not personal tax advice.
Know your bill before January
LandlordTaxAi tracks your rental profit through the year so the 31 January bill — payments on account and all — never blindsides you.
See how it worksA full worked example: the 1.5× shock
Tom’s rental profit gives him a tax bill of £4,000 for his first year in Self Assessment. Here is what falls due:
| 31 Jan: balancing payment (the year just ended) | £4,000 |
| 31 Jan: first payment on account (50%) | £2,000 |
| Total due 31 January | £6,000 |
| 31 Jul: second payment on account (50%) | £2,000 |
So Tom pays £6,000 in January — 1.5× his actual £4,000 bill — and another £2,000 in July. By the following January he has already pre-paid £4,000 towards that year, so only the difference (plus a fresh payment on account) is left. The first year always feels brutal; after that it smooths out. The fix is simply to set aside roughly 1.5× your expected tax for that first 31 January.
How to reduce payments on account
If you genuinely expect lower income next year — a property sold, a long void, rising mortgage costs — you can apply to reduce your payments on account in your Self Assessment account. Two cautions:
- Reduce to a realistic figure. If you cut them too far and end up owing more, HMRC charges interest on the shortfall from the original due date.
- If income rises, you do not increase the payments — you simply settle the extra in the balancing payment the following January.
Keeping accurate, up-to-date records through the year — which you will need anyway under Making Tax Digital for Income Tax — makes it easy to judge the right figure.
Frequently asked questions
What are payments on account?
Payments on account are advance payments towards your next tax bill. HMRC assumes your income next year will be similar to this year, so it asks you to pay your expected liability in two instalments — one on 31 January and one on 31 July — rather than all at once after the year ends. Each instalment is half of your previous year's tax bill.
When do payments on account apply?
They apply when your Self Assessment tax bill is more than £1,000 and less than 80% of your tax was already collected at source (for example through PAYE). Most landlords whose rental profit pushes their bill over £1,000 will be brought into the system. If either test is not met — a bill under £1,000, or most tax already deducted at source — you do not have to make payments on account.
Why is my first tax bill 1.5 times what I expected?
Because in your first year in the system you pay the full tax for the year just ended (the 'balancing payment') plus the first payment on account for the next year (50% of that bill) — all due on the same 31 January. That adds up to 1.5 times your actual liability. It is a one-off cash-flow shock, not extra tax: you are simply paying ahead. Budgeting for it is the key.
Can I reduce my payments on account?
Yes. If you know your income will be lower next year — for example you sold a property, had a void period, or your costs rose — you can apply to reduce your payments on account through your Self Assessment account. Be careful not to reduce them too far: if you underpay, HMRC charges interest on the shortfall. Reduce them to a realistic figure, not an optimistic one.
Is Capital Gains Tax included in payments on account?
No. Payments on account cover your Income Tax (and Class 4 National Insurance if you have trading income), but not Capital Gains Tax. CGT on a property sale is reported and paid separately — within 60 days for UK residential property — and is never rolled into your payments on account. Keep the two completely separate when you budget.
Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 23 June 2026 · Based on HMRC guidance on Self Assessment payments on account, including the £1,000 and 80% thresholds and the 31 January and 31 July deadlines. Figures are for the 2026/27 tax year. This article is informational only and does not constitute tax advice. Always check the latest details on GOV.UK or with a qualified accountant.