Following this year’s Budget, anyone with income from land and property can expect higher taxes on rental profits, tighter limits on reliefs, and more focus on wealth held in residential property. These changes indicate a noticeable shift for landlords, second-home owners and property investors planning their next steps.
New tax rates for rental income
A major change in the Budget is the introduction of sepa- rate tax rates for property income from April 2027. Instead of the usual income tax bands, rental income will fall under its own rates:
- 22% for basic-rate taxpayers
- 42% for higher-rate taxpayers
- 47% for additional-rate taxpayers
These apply to rental properties, furnished holiday lets, and any other commercial or residential property income. With income tax thresholds frozen until 2031, more landlords will be pushed into higher bands. Those near the next bracket may want to review their ownership structure. Residential-property landlords (and furnished holiday lets from April 2025) can only claim 20% mortgage interest relief.
Dividend and savings tax rises
For landlords who use a company structure, dividend tax rates will increase by two percentage points from April 2026. This applies to the dividend ordinary rate, rising from 8.75% to 10.75%, and the upper rate, rising from 33.75% to 35.75%. The additional rate of 39.35% stays the same.
Savings income tax also rises to 22%, 42% and 47% from April 2027. Investors who rely on company reserves or interest returns will need to factor this in.
High-value homes: new council tax surcharge
The Budget introduced a new charge on high-value residential properties from 2028. This is not a mansion tax, but a high-value council tax surcharge, paid annually alongside normal council tax.
The rates are:
- £2,500 per year for homes worth between £2m and £5m
- £7,500 per year for homes worth over £5m This applies to main homes, second homes and rental properties. For landlords with premium properties, this becomes a recurring cost that will affect returns.
Inheritance tax: more estates caught in the net Three key changes make tax planning more important:
- The nil-rate band and residence nil-rate band stay frozen until 2031.
- Agricultural Property Relief and Business Property Relief are capped at £1m per person, transferable between spouses.
- From April 2027, unspent pension pots will form part of the estate if not drawn.
With property values rising faster than IHT thresholds, more estates will fall into this charge
Capital gains: reliefs tightened
CGT rates remain unchanged, but some reliefs become less generous:
- Disposals to Employee Ownership Trusts will only receive 50% relief, instead of full relief.
- Gains eligible for Business Asset Disposal Relief and Investors’ Relief will be taxed at 18% from April 2026. These changes mainly affect developers, company owners and investors involved in joint ventures, but they underline a wider theme, that reliefs are becoming narrower and more controlled.
What the Budget didn’t include
It is equally important to note what was not in this Budget:
- No changes to landlord mortgage interest rules
- No Stamp Duty Land Tax (SDLT) changes for property investors
- No new landlord-specific incentives
Existing relief for genuine property partnerships remains available, meaning an SDLT charge may not apply when transferring a partnership’s properties into a company. The government is clearly focused on raising revenue from property and investment income, not introducing new support.
Digital reporting: be prepared
Making Tax Digital for Income Tax begins in April 2026 for landlords with property income over £50,000. There will be no penalties in the first year for late quarterly submissions. Landlords who rely on manual records should prepare early, as quarterly reporting will become compulsory.
Planning for the road ahead
While the Budget may not have been warmly received by landlords, it does provide a clear outline of what the next few years will look like. Property income will be taxed more heavily than before, from April 2027, thresholds will stay frozen, and high-value homes will face extra yearly charges.
For landlords and investors, this means:
- reviewing how rental income will be taxed from 2027
- weighing up personal and company ownership structures
- planning for the high-value council tax surcharge
- revisiting inheritance plans
- preparing for digital reporting
There are still opportunities to plan effectively. What matters now is stepping back, reviewing the full picture and deciding what adjustments will keep your property plans on track.
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