Chancellor John Healey has announced a further 2% increase in income tax on rental earnings, effective from April 2027, bringing the basic rate of tax on rental income to 24%.
The move marks an additional increase beyond the previously planned rise to 22% from 20% announced by Healey’s predecessor Rachel Reeves. The higher rate will increase from 40% to 44%, whilst the additional rate will rise from 45% to 49%.
Treasury justification
The Treasury stated that the government is maintaining unchanged rates of tax on employment earnings whilst seeking additional contributions from those with taxable income from assets.
“Budget 2025 increased the rates of tax on savings and property income by two percentage points across all tax bands from April 2027. The Government will increase these rates by a further two percentage points from that date,” the Treasury said.
According to the government, 84% of income tax payers will be unaffected by the changes. Around half of the revenue raised is expected to come from the top 10% of households.
Industry response
Ben Beadle, Chief Executive at the National Residential Landlords Association (NRLA), said the tax increase would make life harder for renters. “As the Office for Budget Responsibility has confirmed, hiking taxes will drive up rents and drive down supply in the rental market when demand is already way ahead of the number of homes available,” he stated.
Timothy Douglas, Head of Policy and Campaigns at Propertymark, described the rise as “steep and punitive”, warning it would disincentivise potential landlords from entering the market. He noted that the Office for Budget Responsibility has indicated the tax rise will result in steady, long-term rent increases.
Steve Cox, Chief Commercial Officer at Fleet Mortgages, said the increase is likely to prompt landlords to reconsider their property ownership structures. Fleet’s Q3 Rental Barometer showed that 71% of buy-to-let mortgage applications in Q3 were made through limited companies, compared to 78% in the previous quarter. Cox suggested the tax changes could reverse this trend back towards corporate ownership structures.
Market implications
Paul Shamplina, Founder of Landlord Action, questioned how much more pressure the government expects landlords to absorb. “Last year we had a two percentage point increase in tax on rental income announced, and now we are being told there is another two per cent on top of that,” he said.
Shamplina noted that landlords are already contending with rising costs, increased regulation, and changes introduced by the Renters’ Rights Act. The additional tax burden comes on top of other fiscal measures affecting property owners, including the government’s confirmed mansion tax on properties valued over £2 million.
The tax increase arrives as the rental market faces supply constraints, with demand significantly outpacing available properties. Industry figures warn that further disincentives for landlords could exacerbate the shortage of rental accommodation, potentially driving rents higher and reducing choice for tenants.
The changes will take effect from April 2027, giving landlords time to review their investment strategies and consider alternative ownership structures to mitigate the tax impact.
