With the Chancellor announcing a four-percentage-point increase in the tax charged on property income, many landlords will wonder how an increased tax bill can be managed.
Amidst the backdrop of rising costs and ever-tightening compliance requirements, the additional tax burden will have wide-reaching financial consequences.
While landlords may look to change their ownership structure to offset the elevated tax rates, doing so may create additional liabilities of its own.
What has changed in the 2026 Budget?
The Income Tax paid on property income has been raised by four percentage points, building on the rate increases proposed in the Autumn Budget 2025.
From 6 April 2027, individual landlords in England, Wales and Northern Ireland will pay income tax on rental profits under the following income tax rates:
| Type of income | Basic rate | Higher rate | Additional rate |
| Property income | 24 per cent (currently 20 per cent) | 44 per cent (currently 40 per cent) | 49 per cent (currently 45 per cent) |
What do the changes mean in practice?
In a real-world context, every £10,000 of taxable rental profit will see a landlord paying £400 more tax than under the current tax regime.
Moreover, individual landlords can no longer deduct mortgage interest from their rental income, instead receiving a tax credit at the rate of 24 per cent.
While the additional mortgage interest relief may somewhat soften the blow for basic-rate landlords, it is higher- and additional-rate taxpayers who will feel the tax rise most deeply.
From April 2027, the gap between the tax owed on rental profit and the relief received for finance costs is only set to broaden.
Could incorporation offset the tax hike?
Landlords may look to change their ownership structure to counteract the elevated tax rates, but transferring assets may create additional liabilities.
For unincorporated landlords who own assets in their own name, under a joint ownership or in a property partnership, the elevated income tax rates can shrink margins.
However, landlords who hold property through a limited company will not feel the rate changes, as they will continue to pay corporation tax at between 19 per cent and 25 per cent.
While incorporating rental assets may be effective in shielding income from the tax changes, landlords may trigger Capital Gains Tax (CGT) and Stamp Duty when transferring properties into a company.
Moreover, extracting rental profits from a company can create liabilities, particularly with the dividend tax rates rising in April 2026.
While landlords may believe rushing to incorporate can eliminate the upcoming tax rate changes, any plans to change an ownership structure should be carefully reviewed with a professional.
What are the next steps?
With the changes arriving in a matter of months, now is a good time to:
Speak to an accountant
While the changes are likely to be unwelcome to many landlords, building on the rate rise announced in 2025, effective tax planning can help mitigate the financial repercussions.
Our specialists can review your portfolio and forecast how the rate changes will impact your rental income, advising whether an alternative ownership structure could be more tax-efficient.
