The increase will take the basic, higher and additional rates of tax on property income to 24%, 44% and 49% respectively, adding to the rises announced in last year’s Budget.
The measure affects unincorporated landlords. Finance cost relief will remain aligned with the property basic rate. No further changes to tax rates on employment or dividend income were announced.
The Budget in 2025 had already set property income tax rates at 22%, 42% and 47% from April 2027, and today’s announcement adds another two percentage points to each band from the same date.
In the Budget document, the government described the approach as ‘fair and proportionate’, stating that 84% of income taxpayers would be unaffected. It said around half of the revenue raised by the further increase was expected to come from the top 10% of households.
The announcement prompted warnings from tax advisers and property businesses about the impact on investment and the supply of rental homes.
Heather Powell, a partner at Blick Rothenberg, said: “+2% on rental income really is the final nail in the coffin for private investors in rental properties – tax rates of 24%, 44% and 49% – and a deduction for interest that is restricted to the basic rate will mean that landlords will be looking to sell up and invest their money elsewhere.”
Simon Misiewicz, founder and chief tax strategist at Optimise Accountants, added: “Today’s announcement that property income tax rates will rise by an extra two percentage points from April 2027 significantly widens the private rented sector’s ‘phantom profit’ trap.
“With personal rates set to reach 24%, 44% and 49% in England, higher rates compound existing pressures from Section 24 mortgage restrictions and upcoming digital reporting mandates.
“Landlords cannot afford to treat tax forecasting as an annual afterthought. Instead of waiting for fiscal events like today’s Budget, property owners need to focus on routine fundamentals: stress-testing cash flow against borrowing costs and reviewing portfolio structures.
“Long-term stability relies on consistent, year-round accounting to avoid discovering a painful cash shortfall when returns are prepared.”
Greg Tsuman, managing director for lettings at Martyn Gerrard, commented: “Adding a further two per cent tax to property income on top of the previously announced two per cent is a surprising and incomprehensible decision. Last year’s Autumn Budget dealt a severe blow to the sector, but it looks like the Government wants to finish it off.
“The OBR was already warning that the level of tax being imposed on landlords was likely to drive up rents and reduce rental property supply. This is lunacy, and I fear that the Government is actively trying to dismantle the PRS. At this point, the government may as well criminalise renting out a property.
“Landlords have endured successive measures against them for years, and we’re already seeing an unprecedented exodus from the rental market. There was a desperate need to reassure and provide confidence. Instead, we’ll see the rush to the door intensifying. The property market is already struggling with the oversupply of rental properties being sold, and we’re going to see even more downward pressure on house prices as a result of this.
“With most renters not in a position to buy in this economic climate, we’ll just see more empty homes and increased rents. As the Government tries to end homelessness, it couldn’t have picked a better way to cause it to surge. If the previous Budget shot themselves in the foot, this one could be to the head.”
Steve Cox, chief commercial officer at Fleet Mortgages, said: “The further increase in property income tax is likely to make many landlords reconsider how they hold their rental properties, particularly those with larger portfolios who may already be paying higher rates of income tax.
“Our latest 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, suggesting there had been some movement back towards individual borrowing.
“However, with property income tax rates now set to rise even further than previously announced, we would not be surprised to see more landlords considering whether they should continue to hold their properties in their individual names or explore instead the potential benefits of limited company ownership.
“Of course, incorporation will not be appropriate for every landlord, and there are costs and tax implications involved in transferring existing properties into a company structure. However, for those considering their next purchase or reviewing their existing borrowing arrangements, the difference in tax treatment is becoming an increasingly important consideration.
“At a time when the private rental sector needs continued investment to meet tenant demand, there is also a wider question about the cumulative impact of tax changes on landlords’ willingness to invest. We would expect advisers to see more landlords reviewing their options in the months ahead, particularly as the April 2027 implementation date approaches.”
Tony Hall, head of business development at Saffron for Intermediaries, said: “Last year’s increase has yet to take effect, and the Chancellor has already doubled it. Raising property income tax rates to 24%, 44% and 49% from April 2027 adds yet more pressure on landlords already navigating rising costs and substantial regulatory change.
“The government describes this as fair and proportionate, but landlords will judge it against the cost of providing a home. Maintenance, repairs, safety checks and property improvements all need funding. Taking more of the income leaves less available to reinvest.
“Many landlords are already rethinking how they operate, whether through limited companies, changes to their portfolios or investment in HMOs and multi-unit blocks. These decisions require careful advice and long-term planning. Repeated tax increases make that planning harder and risk discouraging further investment.
“If the government wants more good-quality homes to rent, it needs to give landlords reasons to provide them. Squeezing rental investment further risks leaving tenants with fewer choices and higher costs.”
