New property tax rises add to burden on landlords

The rate of income tax on rental income is set to rise by four percentage points in 2027, Chancellor John Healey revealed in his Budget on Wednesday. That’s double the increase announced by his predecessor, Rachel Reeves, last year. 

As of 6 April 2027, the property basic rate in England, Wales and Northern Ireland will be 24%. The higher rate will be 44% and the additional rate 49%.

Taken in isolation, this change may not be enough to prompt landlords to look again at their investments. But the increase is the latest in a long line of adverse developments in terms of tax, financing costs and red tape. 

So we’re advising landlords to take this opportunity to consider their next steps: for example, should they retain, sell, gift, restructure or incorporate their portfolios? And for each of these potential options, what are the possible consequences in terms of capital gains or inheritance tax, stamp duty, future income needs and long-term management.

Cumulative pressure on residential landlords

As well as higher rates of tax on rental income, landlords are facing higher capital costs, reduced relief on mortgage payments and a greater regulatory burden after the introduction of the Renters’ Rights Act 2025. These developments have changed the risk-and-return calculation for some landlords so much that they have left the market entirely.

The best way forward will depend on individual circumstances. A professional landlord with a substantial portfolio is likely to approach the question differently from someone with one or two investment properties. For smaller landlords in particular, however, next year’s unexpectedly large increase in the tax burden could prompt a comprehensive review of whether those properties remain commercially viable.

That does not necessarily mean a wholesale exit from the market. Some landlords may decide to retain their best-performing properties while selling those that are producing a weaker return, have higher borrowing costs or are likely to require significant investment.

For residential landlords who decide to sell one or more properties, there are a number of factors to consider. There’s an important distinction between obtaining vacant possession before putting a house or flat on the market, and selling with a tenant in situ. Each route has the potential to appeal to a different type of purchaser and raises different considerations.

At the same time, any decision to dispose of a property needs to take account of the sale’s tax consequences alongside the legal and practical position relating to the tenancy.

Farmers and rural landowners

The rises in property income tax are likely to extend beyond commercial buy-to-let into farming and rural communities. Farmers and rural landowners who let agricultural land, cottages or other property could be affected, depending on the nature and structure of the income they receive.

Farming families are already facing significant inheritance tax changes. Since April 2026, a new £2.5 million allowance has applied to the combined value of property qualifying for 100% Agricultural Property Relief and Business Property Relief, with qualifying property above that level eligible for relief at a reduced 50% rate. 

For some farming and land-owning families, the combination of taxation on rental income, increased exposure to inheritance tax and a greater need to think about succession planning may prompt a wider review of property holdings.

Considering your next steps on property

For landlords and other property owners, the sensible response to the 2026 Budget is not necessarily to rush to sell, but to take stock. Key questions include: 

• What income does the property generate?
• What does it cost to hold? 
• What tax is payable?
• What regulatory obligations apply?
• Does retaining it still fit with your longer-term financial plans?

For farming and land-owning families, that assessment may need to go wider still, bringing succession and inheritance tax planning into the equation alongside the performance of individual properties.

For many owners, the numbers will continue to work. For others, this Budget may simply be the point at which a longer-term intention to sell becomes a decision to act.

Keep up to date with our Budget coverage

On 28 October, our experts will be providing instant reaction to the key Budget measures on our dedicated hub and our LinkedIn page. And in the following weeks, we’ll have in-depth analysis and advice on how the Chancellor’s measures will affect your business.