Important Tax Changes for Landlords: Effective April 2027

From April 2027 landlords will face increased property tax rates. Property income will become subject to rates of 22% (basic rate), 42% (higher rate) and 47% (additional rate). This is an increase of 2% across all tax bands compared to current rates. Finance cost relief will remain and will be restricted to the property basic rate of 22%.

Personal Allowance

While reporting will remain the same, with the introduction of Making Tax Digital from April 2026, one major change is the restriction on how the Personal Allowance can be allocated. From April 2027, it must first be applied to employment, trading or pension income before property income, removing the taxpayer’s ability to freely allocate their Personal Allowance how they wish.

A landlord earning £20,000 employment income and £10,000 from property will now have their Personal Allowance allocated against employment income first, leaving property income fully taxable at 22%.

Impact

The 2% increase in the basic rate will represent a 10% relative increase in the tax rate (from 20% to 22%). This change, together with the continued freeze on personal income tax thresholds, means landlords will be pushed into higher tax bands more quickly, further reducing their net income.

For several years, landlords have seen higher operating costs, reduced tax reliefs and increased borrowing rates. These recent changes will therefore not come as good news to those landlords already under pressure. Tenants may also find they are exposed to increased rent driven by these changes, alongside shortages in available homes should landlords leave the market.

The increased tax burden may make low-yield properties unviable enterprises. While it is unlikely every landlord will choose to sell, it is an option for some who will be frustrated by further measures targeting the sector.

Planning Ahead

For those facing the higher tax burden, it may be prudent to evaluate rent adjustments, which could offset some of the tax impact going forwards or even consider the benefits of incorporation.

Get In Touch

Proactive planning for landlords is key. It is clear that landlords should be reviewing their options and ensuring that they are ready for the changes in April 2027.

Please contact us to discuss strategies that are tailored to your circumstances, to ensure that you are in the best position before the changes take effect.