Britain’s rental income tax will rise by a total of four percentage points from April 2027 after Chancellor John Healey doubled the increase previously announced by his predecessor Rachel Reeves, Independent Arabia reported. Basic-rate landlords will see the tax on their rental income climb from 20% to 24%, while higher-rate landlords will move from 40% to 44%.
The government expects the measure to raise about £2 billion ($2.6 billion) for the Treasury over five years. For individual landlords, the bill is steeper still: analysis by The Letting Partnership, based on a medium-sized portfolio of around seven properties, estimates the annual tax bill for a landlord could rise by roughly £3,500 ($4,683).
Why some landlords are moving properties into companies
The tax rise has given investors a strong incentive to restructure their holdings through limited companies, paying corporation tax instead of personal income tax on rental revenue. Companies can also deduct mortgage interest in full from rental income before calculating tax, a benefit not available to individual landlords in the same way.
David Fell, chief analyst at estate agency Hamptons, said the expected increase represents “a very big incentive to consider setting up a limited company for property investment.” Chris Mason, chief operating officer at The Letting Partnership, said the move “can be a good option” and more tax-efficient in some cases, adding that the tax rise will encourage more new investors to enter the rental market through limited companies from the start.
Paul Shamblina, founder of Landlord Action, a legal advisory firm for landlords, said some investors may exit the market altogether, particularly with the changes that strengthened tenants’ rights under the Renters’ Rights Act. “There is a gradual exit of smaller landlords who are fed up with these conditions,” he said.
£245 a month: the gap between personal and company ownership
The difference can be seen in a simple example. A landlord renting out a flat for £1,000 ($1,338) a month and paying £500 ($668.87) in mortgage interest would owe £95 ($127) in tax if the flat were owned by a limited company, based on taxable profit of £500 after deducting the full interest cost. If the flat is registered in the landlord’s personal name, tax is charged on the full £1,000 at the 44% higher rate — £440 ($588.55) — before a 20% tax credit on the mortgage interest of £100 ($133.78), leaving a net tax bill of £340 ($454.84).
That is a gap of £245 ($327.71) a month, or £2,940 ($3,932) a year, before any additional costs of owning the property through a company.
Transfer costs that can erase the savings
Moving a property from a personal name into a limited company is treated for tax purposes as a sale and purchase. That can trigger Stamp Duty Land Tax and Capital Gains Tax if a taxable gain is realized. And setting up a company does not exempt the owner from tax when taking money out: withdrawing profits can be subject to income tax or dividend tax, depending on how the money is drawn and the shareholder’s tax circumstances.
Whether the switch pays off ultimately depends on the size of the property portfolio, the level of borrowing, expected profits, how long the properties will be held and how profits will be withdrawn from the company. For that reason, the option may suit investors who plan to reinvest rental profits better than those who rely on rental income to cover personal expenses, Mason said.
Rents could climb as landlords pass on the cost
The Office for Budget Responsibility has warned that the measures could lead to a gradual rise in rents, as landlords try to pass the extra cost on to tenants.
How many landlords will restructure, how many will sell, and how many will raise rents is not yet known. The new rates take effect in April 2027, and the full effect on the rental market will only become clear once they do.
Questions landlords are asking about the April 2027 tax rise
When do the new rental tax rates start? The increases take effect from April 2027, with basic-rate landlords moving from 20% to 24% and higher-rate landlords from 40% to 44% on rental income.
How much could a landlord’s annual tax bill rise? The Letting Partnership estimates that a landlord with a medium portfolio of about seven properties could see their annual tax bill rise by around £3,500 ($4,683).
What taxes apply when moving a property into a limited company? The transfer is treated as a sale and purchase, which can trigger Stamp Duty Land Tax and Capital Gains Tax, and withdrawing profits from the company can also be taxed as income or dividends.
Who benefits most from a limited company structure? According to Chris Mason of The Letting Partnership, the option tends to suit investors who plan to reinvest profits rather than those who depend on rental income for their personal spending.
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