Increased tax on rental income: What does this mean for landlords and property investors?

The Chancellor has announced a four-percentage-point increase in the tax charged on property income, doubling the rise landlords previously expected.

From April 2027, many property investors and landlords will face higher tax bills, particularly those who own assets in their own name.

With higher taxes set to have wide-reaching consequences, discussing planning strategies with an accountant can help to mitigate the financial impact.

What has changed in the 2026 Budget?

Last year’s Autumn Budget announced a two-percentage-point increase in tax rates paid on property income.

However, the changes introduced in the Chancellor’s latest speech mean this has now been raised to four percentage points.

From 6 April 2027, individual landlords in England, Wales and Northern Ireland will pay Income Tax on rental profits under distinct property Income Tax rates, as follows:

Scottish landlords should evaluate their tax position separately, as devolved tax arrangements may apply north of the border.

What does this mean in practice?

For every £10,000 of taxable rental income, a landlord will pay £400 more tax than under the current rates.

Under the Section 24 rules, individual landlords can no longer deduct mortgage interest from their rental income, as they instead receive a tax credit at the rate of 24 per cent.

While the additional mortgage interest relief may lessen the impact for basic-rate landlords, higher- and additional-rate taxpayers will feel the tax rise most acutely.

The gap between the tax they owe on rental profit and the relief they get on finance costs will only widen from April 2027.

Time to consider moving your property portfolio into a limited company?

The heightened tax rates on property income impact unincorporated landlords, including those who own assets in their own name, joint owners and partners in property partnerships. 

On the other hand, landlords who hold property through a limited company are not directly affected by the rate changes, as they are charged Corporation Tax at between 19 per cent and 25 per cent.

Although incorporating rental assets can be effective for mitigating the upcoming Income Tax hikes, landlords may trigger Capital Gains Tax and Stamp Duty for moving properties into a company.

Extracting profits from a company can also create liabilities, with the Dividend Tax rates rising in April 2026.

Instead of rushing to change ownership structures to offset the upcoming rate change, landlords should carefully review their portfolio to assess the best course of action.

What should landlords do now?

With the new rates just over five months away, now is a good time to: 

• Consider whether rental income could be shared with a spouse or civil partner who pays a lower rate 
• Review the timing of rental income and allowable expenses around 5 April 2027 

• Weigh up whether a limited company structure makes sense, allowing for the stamp duty costs of transferring property 
• Make sure every allowable expense is claimed

Speak to an accountant

While the changes are likely to be unwelcome to many landlords, effective planning can help minimise the financial fallout.

Our accountants can help review your portfolio and forecast how the rate changes will impact your rental income, advising whether you may benefit from switching ownership structure.

Concerned about how these changes may impact you and your property portfolio? Please get in touch with our property tax specialists.