Budget 2025 - New Tax Rates on Rental Income Coming in 2027 – A Simple Guide
03/12/2025
Starting in April 2027, the way rental profits are taxed in the UK is changing significantly for the first time.
Instead of being taxed at the normal income tax bands (20%, 40%, 45%), income from renting out property (houses, flats, land, etc.) will have its own separate tax rates called the “property income rates”.
The New Property Tax Rates (from April 2027)
- Property basic rate: 22% (instead of 20%)
- Property higher rate: 42% (instead of 40%)
- Property additional rate: 47% (instead of 45%)
This means most landlords will pay 2% more tax on their rental profits than they do today.
Mortgage Interest Relief is Also Changing
Currently, higher and additional-rate landlords only get basic-rate (20%) tax relief on their mortgage interest. From 2027, that relief will stay at the new property basic rate of 22%. So, while the tax on profits is going up by 2%, the relief on finance costs is also increasing from 20% to 22% – a small consolation for higher-rate landlords.
Who is Affected?
These changes apply to individual (unincorporated) landlords in England, Wales and Northern Ireland. Companies, Scottish landlords, and Welsh landlords may have different rules because some tax powers are devolved.
Why is the Government Doing This?
The Chancellor says rental income currently escapes National Insurance contributions (the top rate of which is 2%), so bringing the tax rate in line with employed income is seen as fairer. The change is expected to raise around £600 million a year.
What Do Experts Say?
Sam Dewes, private client tax partner at HW Fisher, commented: “The landlord market has suffered from significant tax and regulatory changes over the last decade and there are concerns about the knock-on effect that an income tax rise of 2% could have for tenants, especially if the number of properties available to rent decreases due to landlords continuing to exit the market.”
Many in the industry worry this relatively small-looking increase could be the final straw for some landlords who are already facing higher mortgage rates, stricter regulations, and previous tax changes (such as the reduction in mortgage interest relief since 2017).
What Should Landlords Do Now?
- Review your current rental profit margins – a 2% tax rise plus higher interest rates can add up.
- Speak to your accountant about whether incorporating (moving properties into a limited company) still makes sense – company profits are not affected by these new rates.
- Consider the long-term viability of each property, especially lower-yielding ones.
These changes are still over a year away, but forward planning will be key.
If you’re a landlord and would like help modelling the impact on your portfolio, feel free to get in touch.
