Property income tax rates set to rise from April 2027
- 20th January 2026
Landlords have faced increasing regulatory and tax pressure in recent years, and further changes are now on the horizon. From 6 April 2027, property income will be taxed at higher rates following the introduction of a separate set of income tax bands specifically for rental income.
Under the new rules, the property basic rate will increase to 22 percent, the higher rate to 42 percent and the additional rate to 47 percent. This represents an across-the-board two percentage point increase. The changes will apply to landlords in England, Wales and Northern Ireland, with the Scottish Government given the option to introduce similar increases.
The impact will not be felt evenly. Relief for residential finance costs will rise in line with the new property basic rate and will be set at 22 percent from April 2027. As a result, landlords with significant borrowing may see a smaller increase in their overall tax bill than those with little or no finance costs.
For example, a higher rate taxpayer earning £20,000 in property income with no borrowing would face an annual tax increase of £400. Where finance costs are £15,000, the increase would fall to around £100 due to the higher level of tax relief available.
The position becomes more pronounced for landlords with larger portfolios. Someone owning ten to twelve rental properties with only moderate borrowing could face an additional tax cost of £1,500 to £2,000 each year. With margins already under pressure from compliance and maintenance costs, many landlords may have little choice but to reflect some or all of this increase in higher rents.
Royal Deb, Partner, comments, “These changes reinforce the importance of reviewing property structures and long-term plans. What worked well from a tax perspective a few years ago may no longer be appropriate as rates and reliefs continue to shift.”
Some landlords may consider incorporation as part of their response. While transferring an existing portfolio into a company can be prohibitively expensive from a tax perspective, acquiring new properties through a limited company may be more attractive. Companies continue to receive full relief for finance costs, although careful planning is needed when extracting profits, particularly as dividend tax rates are also set to increase by two percentage points.
The government’s guidance on renting out property is available here, but tailored advice remains essential where portfolios are substantial or highly geared.
All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.
