A key announcement in the Budget could mean that tax on landlords’ rental income is set to rise significantly in 2027/28.
In his first Budget as chancellor, John Healey kept Labour’s manifesto pledge not to raise taxes on working people. However, this commitment didn’t extend to those who earn income from rental properties.
Income Tax on property income will rise by 4 percentage points in April 2027
In the 2025 Budget, the then chancellor, Rachel Reeves, announced plans to increase Income Tax on property income by two percentage points in April 2027. Healey has now made further reforms that will bring the total increase to four percentage points.
As a result, in England, Wales, and Northern Ireland, from 6 April 2027, the rates of Income Tax on property income will be:
- Basic rate: 24%
- Higher rate: 44%
- Additional rate: 49%
The rate of Income Tax on your earnings will not change. However, if you receive interest on savings held outside a tax-efficient wrapper, such as an ISA, it could also be subject to these higher rates of Income Tax.
According to the Budget document (28 October 2026), the tax increase is forecast to bring an additional £35 million in tax receipts in the 2027/28 tax year. This sum is forecast to increase to £455 million by 2031/32.
The tax increase will apply to landlords who own property in their own names.
A growing number of landlords are setting up companies
Income Tax is paid by individuals, not companies. As a result, if your properties are owned by a company, the rental income will not be subject to the new higher rates.
However, businesses would need to pay Corporation Tax. The rate of Corporation Tax depends on the company’s profit level. For some landlords, setting up a company could prove tax-efficient.
Simply Business (25 February 2026) reports that a record number of buy-to-let companies were set up in 2025. One reason for this surge is that paying Corporation Tax has become more attractive.
Using a limited company may have benefits as well. For example, you may be able to claim full mortgage interest relief, shield your personal assets, or find a tax-efficient way to pass on assets to your loved ones.
There are, of course, downsides to weigh up before moving ahead with a limited company.
First, if you have a mortgage on your properties, buy-to-let mortgages for limited companies tend to have higher interest rates, which could wipe out the tax savings you make.
Second, money you take out of the business, either as a salary or dividend, may be subject to personal tax.
In addition, a company cannot use your personal allowances and exemptions. For example, the Annual Exempt Amount for Capital Gains Tax could be a useful way to reduce a tax bill when disposing of assets, including property that is not your main home, but a company cannot claim this allowance.
Running a business often comes with greater legal responsibilities and administrative tasks. You may need to file accounts annually, submit Corporation Tax returns, and hire an accountant to carry out tasks for you.
While paying Corporation Tax rather than Income Tax could have some benefits, be sure to understand what it involves and whether it’s the right option for you first.
A long-term plan could help you manage tax as a landlord
The increase in the tax rate for property income might prompt you to review your finances. A long-term plan could help you look beyond this change to consider the future. For example, you could consider how to pass on your properties or sell them in a tax-efficient way.
We’re here to answer your questions and work with you to create a tax-efficient strategy that reflects your needs and can be updated as tax rates, legislation, or circumstances change.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Your property may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
The Financial Conduct Authority does not regulate tax planning or some buy-to-let mortgages.
