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The UK Budget 2025 has introduced a significant change for landlords, with a 2% increase in income tax on property rental earnings set to take effect from April 2027.

For the first time, property income will be taxed under a separate property tax system, which could have a major impact on landlords across England, Wales, and Northern Ireland.

What is Changing in Property Income Tax from 2027?

From April 2027, rental income will no longer be taxed under standard income tax bands. Instead, a new property income tax system will apply.

New property tax rates:

• Basic rate: 22%
• Higher rate: 42%
• Additional rate: 47%

This represents a 2% increase across all bands, specifically targeting property and investment income.

Finance Cost Relief – What You Need to Know

Mortgage interest relief will continue, but with a key limitation:

• Relief will be given at the basic property rate of 22%
• This means higher-rate and additional-rate taxpayers will not receive full relief

👉 For many landlords, this could increase effective tax liability, especially those with large mortgages.

Why is the Government Increasing Property Tax?

The government has justified the increase by highlighting that:

• Property and investment income are not subject to National Insurance
• The top National Insurance rate is 2%, aligning with the tax increase

However, many experts argue this adds further pressure to an already strained sector.

Impact on Landlords and Tenants

According to industry experts, the landlord market has already faced:

• Increased regulation
• Reduced tax relief
• Rising costs

This latest change may lead to:

• 📉 Landlords exiting the market
• 📈 Reduced rental property supply
• 💷 Higher rents for tenants

The government expects to raise £600 million annually, but this may come with wider economic consequences.