Landlord tax changes 2025–27: what the extra 2% on rental income really means (and what you can do about it)

“This new landlord tax is going to wipe out small landlords. Might as well sell up now.”

❌ Myth.

From 6 April 2027, the UK is changing how individual landlords’ rental profits are taxed.

Instead of being taxed at the standard income tax rates (20%, 40%, 45%), rental profits for individuals will be taxed at new property income rates of 22%, 42% and 47%.

On top of that, we already have:

  • The Section 24 restriction on mortgage interest relief for residential landlords, where you no longer deduct interest but instead get a basic rate tax credit.
  • The abolition of the Furnished Holiday Let (FHL) regime from April 2025, which pulls holiday lets into the same rules as standard property income.

So yes, this is one more squeeze.

But for most private landlords with 1–10 properties, it isn’t the end of the road.
It’s a wake-up call:

“If I’m going to stay a landlord past 2027, I need my structure, gearing and portfolio working as hard as possible after tax.”

This guide walks through, in plain English:

  • What the new landlord tax actually is
  • Who it affects (and who it doesn’t)
  • How much more tax two very normal landlords will pay
  • The opportunities this creates to improve your structure and cashflow, not just absorb another hit

Along the way, we’ll point you to related guides on:

What actually changed for landlords in the 2025 Autumn Budget?

From the 2027–28 tax year, the government is creating separate tax rates for property income.

For individuals (England, Wales, Northern Ireland):

  • Property basic rate: 22%
  • Property higher rate: 42%
  • Property additional rate: 47%

These apply to property income, broadly, your taxable rental profits from UK or overseas property, including holiday lets once the FHL regime has gone.

At the same time:

  • Finance cost relief (for residential mortgage interest and similar costs) for individuals remains restricted to the basic rate – that’s the Section 24 regime – but the basic rate for property income will now be 22%, so the tax credit on finance costs will also rise to 22%.
  • From April 2027, allowances and reliefs are used on other income first, and only then on property, savings and dividends. Practically, that means more of your rental profit is likely to be fully taxable at 22%, 42% or 47% if you also have employment or trading income.

This sits on top of earlier changes:

  • Section 24, which restricts finance cost relief to the basic rate for individual residential landlords
  • Spring Budget and later announcements abolishing the FHL regime from April 2025, so holiday lets join your normal property business

The stated policy goal is to narrow the tax gap between income from work and income from assets (like rents), because property income doesn’t attract National Insurance.

Who is actually affected by the new landlord rates?

You’re in the firing line if all of these are true:

  • You’re an individual landlord (not a company).
  • You receive property income – rental profits from residential property in the UK or overseas, including what used to be FHL.
  • After the £1,000 property allowance and expenses, you have taxable rental profits.
  • Your total income takes you into the basic / higher / additional rate bands, so you’ve used your personal allowance.

You’re not directly hit by the 22% / 42% / 47% property rates if:

  • Your properties are all held in a limited company – the company continues to pay Corporation Tax on its profits.
  • You only have small amounts of property income covered by the property allowance or Rent a Room relief.
  • You are dealing purely with commercial property in a corporate structure.

That said, even if you already use a company, this still matters because:

  • Many landlords have a mix – some properties in their own name, others in a company.
  • The direction of travel is clear: the government wants more tax from rental income, not less.

If this is ringing bells on structure, you’ll find three related deep dives useful:

How much more tax will I pay? Two simple landlord examples

Let’s bring this down to real numbers.

Assumptions (to keep it simple):

  • Figures below are taxable rental profit after expenses and interest.
  • Their personal allowance is used by other income (salary, self-employment etc.).
  • We’re just comparing property tax rates now vs from 6 April 2027.

Landlord A – One flat on the side

  • 1 rental flat
  • £15,000 taxable rental profit per year
  • Basic-rate taxpayer

Today (2025/26) – taxed at 20%:

  • 20% of £15,000 = £3,000 income tax

From April 2027 – property basic rate 22%:

  • 22% of £15,000 = £3,300 income tax

Extra tax: £300 per year, around £25 per month.

Landlord B – Three rentals for retirement

  • 3 rentals
  • £35,000 taxable rental profit per year
  • Higher-rate taxpayer

Today (2025/26) – taxed at 40%:

  • 40% of £35,000 = £14,000 income tax

From April 2027 – property higher rate 42%:

  • 42% of £35,000 = £14,700 income tax

Extra tax: £700 per year, around £58 per month.

You can see the pattern:

Rough rule of thumb: about £200 extra income tax per year for every £10,000 of taxable rental profit, once the new property rates kick in.

For mortgage-free or lightly geared landlords, that 2% rise lands more or less directly on the bottom line. For more leveraged landlords, the slightly higher 22% finance cost credit softens the blow a little, but doesn’t remove it.

Why this feels worse than “just 2%”, the real pain points for private landlords

On paper, 2 percentage points doesn’t sound catastrophic.

In reality, landlords are experiencing it as part of a stack of changes:

  • Section 24 already means you can’t deduct residential mortgage interest from rental income if you own property personally. Instead, you get a basic-rate tax credit on your finance costs.
  • Mortgage rates have climbed from the ultra-low levels of the late 2010s/early 2020s, so the cash cost of borrowing is much higher than many original spreadsheets assumed.
  • The FHL regime is being abolished from April 2025, bringing holiday lets into the same property business as your other rentals – with less generous income tax and capital gains treatment.
  • Various tax thresholds are frozen, which quietly drags more of your rental profit into higher bands in real terms.
  • EPC and regulatory expectations mean higher future spend just to maintain compliance.

So when landlords say it feels like death by a thousand cuts, they’re not exaggerating.

But this is exactly why the new landlord tax can be seen as a useful line in the sand:

“If I’m going to stay in property past 2027, I want to be doing it in the right structure, with the right level of borrowing, on the right properties.”

Where’s the opportunity? 5 smart ways landlords can respond

Instead of simply accepting another tax rise, there are five practical levers most private landlords can pull.

1. Re-run the numbers on each property (after tax)

A lot of landlords still look at their portfolio mainly before tax:

  • “The rent covers the mortgage and a bit of profit – we’re fine.”

With Section 24, the FHL changes and the extra 2%, that isn’t enough.

It’s worth building a simple property-by-property view that shows:

  • Net rent after expenses
  • Finance costs
  • The income tax impact under the new property rates
  • The true after-tax cash position per property

Some units will go from “nice enough” to “marginal” once you look at them through this lens.

If you already use a 52-week forecast for your property portfolio, now is the time to update it so the new property rates and mortgage changes are baked into your weekly cashflow.

2. Sense-check your structure: personal name, SPV or group?

The obvious question this Budget stirs up:

“Should I move my properties into a limited company or an SPV?”

There isn’t a one-size-fits-all answer. Factors include:

  • Your current and future tax bands
  • How much debt you carry against the portfolio
  • Whether you’re still actively acquiring
  • Your time horizon (build-and-hold vs possible exit in 5–10 years)

Companies:

  • Pay Corporation Tax on rental profits, not 42% or 47% income tax.
  • Can deduct mortgage interest fully as a business expense.
  • Create a clearer separation between your personal finances and your property business.

But moving existing personally held properties into a company can trigger Stamp Duty Land Tax and Capital Gains Tax, so it has to be modelled carefully.

That’s where your in-depth guide on moving your rental property into a limited company in 2025/26 comes in. It walks through:

  • When a company genuinely tends to make sense
  • How CGT and SDLT work when you “sell” to your own company
  • Incorporation relief for serious landlords who run a real property business
  • The common traps around “overnight partnerships” and marketed schemes
  • A worked 10–15 year comparison of “do nothing vs incorporate”

If you’re seriously thinking, “Should I shift my existing portfolio into a company before these new rates bite?”, that’s the next read after this post.

Alongside that, your guide on setting up a limited company for properties, including holding company and group structure options, helps landlords who know a company is right but want to get the architecture correct (e.g. SPV under a holding company vs standalone SPVs).

3. Decide where each property should live: SPV or your own name?

For some landlords, the right answer isn’t “all in a company” or “all in personal name”. It’s a mix.

Typical patterns we see:

  • Long-term, higher-geared buy-to-lets that are clearly part of a business strategy often fit best in an SPV company.
  • Low-geared or mortgage-free properties, especially if they’re likely to be sold in the short-to-medium term, may still make sense in your own name, depending on your wider tax picture.

Your article on whether you should hold property in an SPV or your own name (UK, 2025/26) goes into this in depth – looking at tax, mortgage availability, admin burden and exit planning for new purchases.

Put together, you’ve essentially got a three-step content journey for landlords:

  1. This guide – understanding the extra 2% landlord tax and what it does to your personal tax bill.
  2. Moving your rental property into a limited company in 2025/26 – what happens if you actually transfer existing properties into a company.
  3. SPV vs your own name and setting up a limited company for properties, how to structure new acquisitions and the wider group for the next phase.

4. Tidy up the portfolio: keepers, fixers and exits

The combination of:

  • Section 24
  • The FHL abolition
  • The 2% rise in property rates

…will expose weak links.

Ask of each property:

  • Does this still meet my target yield after tax?
  • Am I likely to face expensive upgrades (EPC, major refurb) in the next 5–10 years?
  • Would I be better off selling a weak asset, paying the tax, and redeploying into stronger stock (or reducing debt)?

This is less about “panic selling” and more about conscious pruning. The result is usually a smaller, cleaner, more profitable portfolio that you’re happy to hold through whatever tax changes come next.

5. Build a forward-looking tax plan, not just a year-by-year reaction

The good news is that these property rate changes are:

  • Announced well ahead of time
  • Clear in their shape (extra 2 percentage points, specific operative date)

That creates an opportunity to plan:

  • When to refurbish (and how to time large deductible spends)
  • When to dispose of properties, considering CGT as well as income tax
  • How to use ISAs and pensions to shelter the investment returns you extract from property
  • How to smooth your overall income to limit exposure to the 42% and 47% bands

Most landlords never see their numbers presented as a joined-up strategy. Done well, this is exactly where a tax-led accountant can turn a stressful Budget into a calm, actionable plan.

Landlord tax changes: quick FAQs

1. What is the new landlord tax from April 2027?

From 6 April 2027, individuals’ property income (rental profits) will be taxed at new property rates:

  • 22% (property basic rate)
  • 42% (property higher rate)
  • 47% (property additional rate)

These are separate from the normal income tax rates and apply specifically to property income.

2. When will this affect my Self Assessment?

It first affects your 2027–28 tax year. You’ll feel it in the Self Assessment return due by 31 January 2029 (for most individuals).

3. Does this apply to limited companies and SPVs?

No. The new property income rates apply to individuals.
Companies (including SPVs) pay Corporation Tax on their rental profits instead.

4. How does this interact with mortgage interest relief?

For residential property held personally:

  • You cannot deduct mortgage interest from rental income.
  • Instead, you get a basic-rate tax credit based on your eligible finance costs (the Section 24 rules).

From April 2027, that credit will be at the 22% property basic rate, rather than 20%.

5. What about holiday lets?

The Furnished Holiday Let regime is being abolished from April 2025. Holiday lets will be treated as part of your standard property business and, from 2027, will fall into the same 22% / 42% / 47% property income rates as other rentals.

What should landlords do next? (CTA)

If you’re a UK private landlord with a small or medium-sized portfolio and you expect to still be in the game after April 2027, this change shouldn’t make you panic – but it absolutely should make you review:

  • Your portfolio – which properties are true keepers after tax?
  • Your structure – personal name, SPV, or a group/holding company?
  • Your cashflow – how your real after-tax position looks over the next 2–3 years, not just this quarter.

At Heights, we’re helping landlords:

  • Build property-by-property after-tax cashflow views (often using a 52-week rolling forecast)
  • Compare personal vs SPV vs group structures
  • Model moving existing rentals into a limited company vs staying put, using the framework in your 2025/26 incorporation guide
  • Plan incorporations, disposals and refinances around the new rules

If you’d like to see how these landlord tax changes land for your specific portfolio, you can:

20-minute planning call

or

  • Get in touch to request a structured landlord portfolio review

So the new 2% landlord tax doesn’t become another nasty surprise, it becomes the trigger for getting your property business into the best possible shape.