From April 2027 Landlords will pay higher rates of Tax on Rental Profits
From April 2027 Self-Employed landlords will be expected to pay higher rates of tax, which will be a significant change in how tax is calculated in England, Wales and Northen Ireland.
The change was first announced in the November 2025 budget is now law. Expected to affect around 2.4 million landlords, this marks a change to the way in which income tax is calculated.
Why the change?
The change has been designed to align the tax burden of property rental income with that of employment and self-employment income as generally, rental profits do not usually attract a national insurance charge.
The new rates will be closer to the tax due on other sources of income when taken in to consideration.
Who will this affect?
The new rates will apply to individual landlords, and will not affect companies who receive rental income.
Key Changes
Property Income Tax Rates
Rental profits will be tax seperately to other sources of income. Those rates will be 22% for basic rate tax payers, 42% for higher rate, and 47% additional rate. This is an increase of 2 percent across all tax rates compared to the usual 20%, 40% and 45% tax bands on other sources of income.
Personal Allowance
Personal Allowance, the amount you receive before tax, will also now be applied to other sources of income first, before tax on rental profits is calculated. This means if you have other income such as Employment, Self-Employment or pension income, your personal allowance will first be used on those income streams, before any remaining allowance is used to reduce the tax on rental profits at the new tax rates.
Restricted Finance Relief
Before the new change, individual landlords were able to claim 20% of their mortgage interest payments against the tax charged on rental profits. From April 2027 this will now rise to 22%.
How will this affect the renal market?
The change is likely to cause rents to increase as a result of landlords trying to claw back any extra tax paid.
How will this affect Landlords?
Because income tax thresholds remain the same, rising costs and the increase in rent charged, may push some landlords in to higher tax brackets.
What can we do to prepare before April 2027?
Some planning strategies such as, income splitting between spouses, incorporation, or expense management may need to be considered.
Transfer of some rental income to a Spouse
In some situations a transfer of property ownership to a spouse may help to reduce the overall tax.
Incorporation
In some cases landlords may consider incorporating their rental property portfolio, however this can come with potential Capital Gains Tax, Stamp Duty, and Refinancing costs.
Contact us to discuss your situation before making any decision
Landlords should prepare themselves now for the changes in tax rates ahead of April 2027.
But before deciding whether any of the options listed above are right for you, it is advisable that you review your portfolio with a professional, who can look at your individual circumstances and advise on the correct course of action.
As doing the wrong thing, could lead to further unexpected tax charges.
Why not give us a call today on 01376 743650 or email us at info@courtierandcourtier.co.uk and discuss what we can do, to help you mitigate increased costs.