LANDLORDS are set to be hit by a rise in tax next year as experts warn “part of this will reach tenants as higher rent”.
From 6 April 2027, rental profit gets its own set of income tax rates for the first time, and they sit two percentage points above the rates on earned income: 22% at the basic rate, 42% at the higher rate and 47% at the additional rate, against 20%, 40% and 45% on a salary.
The government’s stated reason is fairness, because rent, savings and dividends do not pay National Insurance, so it wants to narrow the gap between tax on work and tax on assets. This is confirmed policy, announced at the 2025 Budget and set out in the Finance Bill 2025-26.
Under the Section 24 rules, an individual landlord is already taxed on rental income before the mortgage interest is deducted, receiving only a basic-rate tax credit in its place.
So the profit HMRC taxes is often far larger than the money the landlord keeps, and it can push a basic-rate taxpayer into the higher band, now at 42%.
HMRC’s own figures show 2.86 million people declared rental income in 2023-24, and 1.36 million of them declared £10,000 or less. This is not, mostly, the wealthy investor. It is the person with one or two flats and a mortgage.
It also lands on top of a personal allowance frozen until 2031 and a decade of earlier changes, from the mortgage-interest restriction to the stamp duty surcharge.
The Office for Budget Responsibility (OBR), which put the measure at around £0.5 billion a year from 2028-29, judged that it reduces landlord returns and could push rents up over time, estimating roughly £20 to £25 a month on a typical rent in England.
Run the numbers now
Harvey Dhillon, Founder & CEO at Zmartly, warned that part of the bill may ultimately be met by tenants.
He added: “The unfairness runs the other way from how it is being sold. A landlord is often taxed on income they never actually keep. Because mortgage interest is not deducted before tax, only credited back at the basic rate, HMRC can treat a modestly geared landlord as a higher earner they are not, and from 6 April 2027 that slice is taxed at 42% rather than 40%.
“Most landlords are not tycoons: of the 2.86 million people who declared rental income in 2023-24, 1.36 million reported £10,000 or less. Raising their rate by two points and calling it fairness ignores that they are taxed on a profit the mortgage has already eaten.
“My advice is not to panic-sell but to run the numbers now: model your 2027-28 position, check whether a company structure genuinely helps in your case, and use this year’s allowances. The OBR expects part of this to reach tenants as higher rent. A tax aimed at landlords rarely stops with landlords.”
Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, said many landlords are being pummelled from all sides.
He added: “This isn’t about one tax rise in isolation. For many individual landlords, it’s becoming a case of death by a thousand cuts. Most don’t make decisions based on a single Budget announcement – they look at the overall direction of travel.
“Some may now consider whether a limited company structure is more appropriate for future investments, although moving an existing portfolio into a company is rarely straightforward and requires careful planning. Landlords rarely leave the market because of one policy.
“They leave when years of small changes finally tip the balance. Whether or not the policy achieves greater tax fairness, the long-term risk is fewer private landlords, reduced rental supply and continued pressure on rents.”
Landlords have become the easy target
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said smaller landlords are going to be hit.
She added: “Calling this fairness misses the point. A landlord with a mortgage can already be taxed on rent they never actually keep, because Section 24 restricts relief on mortgage interest. Adding a 42% property-income rate does not only hit the caricature of the wealthy landlord. It hits the nurse with one former home, the family with a small retirement property, and the accidental landlord whose costs have already soared.
“The Treasury may collect more, but the bill does not disappear. Some landlords will sell, some will restructure, and some will raise rents where the market allows. None improves supply for tenants. The answer is not panic incorporation or a rush to sell before 2027. Both can create costs and tax charges.
“Landlords should model the numbers now: profit after interest, projected tax, ownership structure, exit plans and whether the property still works long term. This is not about protecting bad landlords. It is about not taxing housing supply into retreat.”
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said rents will go up.
He added: “Landlords have become the easy target. Nobody defends them, so raising their taxes costs the government nothing politically. Yet of the 2.86 million people declaring rental income, 1.36 million reported under £10,000. That is not a tycoon, it is someone with one flat and a mortgage, often taxed on profit Section 24 says they earned but never kept.
“Meanwhile the obligations flow one way. Rising compliance, slow evictions, no real protection when tenants stop paying. Small landlords are quietly selling, and the OBR expects tenants to pick up part of the bill at £20 to £25 a month.”
Photo by Dan Burton on Unsplash.
