From April 2027, landlords in England, Wales and Northern Ireland will face a 2% increase in income tax on rental profits – a change that will create a distinct tax regime for property income and materially affect investment returns.
David Herd, Group Partner at Champion Accountants, explains what the changes mean in practice – and the steps landlords should be considering now to protect profitability.
What’s Changing in April 2027?
The government has confirmed that income tax rates on property income will rise by 2% across all bands:
Property income tax rates from April 2027:
- Basic Rate: 22% (up from 20%)
- Higher Rate: 42% (up from 40%)
- Additional Rate: 47% (up from 45%)
While devolved governments in Scotland and Wales have powers to adjust implementation or rates, the overarching direction of travel is clear: unincorporated landlords will face higher taxation on rental income.
This aligns with broader fiscal policy following the Autumn Budget 2025, which continues the shift towards taxing passive income more heavily than earned income.
The Broader Context: Fiscal Drag and Market Pressure
The rate increase does not exist in isolation. Income tax thresholds remain frozen until 2031. Combined with inflation, this “fiscal drag” is pushing more individuals into higher tax brackets.
Between 2024/25 and 2025/26 alone, around 500,000 more people entered the higher-rate band – taking the total to more than seven million taxpayers. The number of additional-rate taxpayers has also increased significantly. For landlords, this means the 2% rise could have a compounded impact.
At the same time, rental market dynamics are under pressure. Average UK private rents reached record highs in winter 2025/26, rising 4% year-on-year to approximately £1,368 per month. Demand continues to outstrip supply, and rents are rising faster than wages.
Landlords may look to pass on increased tax costs through higher rents. However, doing so risks reducing tenant satisfaction – which directly impacts void periods, arrears risk, and long-term asset protection. Stable, satisfied tenants remain critical to consistent rental income and investment performance.
What Can Landlords Do Now?
Although April 2027 may feel some distance away, proactive planning is essential. Several structural planning options may help mitigate the impact of higher property income tax rates.
- Income Splitting and Spousal Transfers
Transferring property ownership – or a share of rental income – to a spouse or civil partner can help utilise lower personal tax bands more efficiently.
Assets can generally be transferred between spouses or civil partners without triggering Capital Gains Tax (CGT), enabling a more balanced allocation of income and potentially reducing overall tax liability. This option can be particularly effective where one partner remains a basic-rate taxpayer.
- Incorporation: Moving to a Limited Company Structure
Operating through a limited company removes exposure to personal income tax on rental profits. Instead, profits are subject to corporation tax. Importantly:
- Companies are not subject to the 22% finance cost tax credit restriction from April 2027.
- Mortgage interest remains fully deductible as a business expense.
- Profits retained within the company for reinvestment may be taxed more efficiently than personal income.
However, incorporation is not a simple “win” and requires detailed tax planning. Key considerations include:
- Capital Gains Tax (CGT): Transferring property to a company is treated as a disposal at market value. Gains may be subject to 18–24% CGT, although incorporation relief may defer this where the entire business is transferred.
- Stamp Duty Land Tax (SDLT): The company will typically pay a 5% residential surcharge on transfer.
- Mortgage refinancing: Existing personal buy-to-let mortgages must usually be replaced with commercial or SPV products, often at higher rates and fees.
- Dividend tax: Withdrawing profits personally attracts dividend tax (rising to 10.75% and 35.75% from April 2026).
Incorporation often works best for higher and additional-rate taxpayers with highly geared portfolios who intend to reinvest profits rather than draw them immediately.
Why Individual Advice Matters More Than Ever
There is no one-size-fits-all solution. The right strategy depends on:
- Portfolio size
- Income profile
- Long-term investment objectives
- Cashflow requirements
- Succession and family planning
At Champion, we conduct detailed three-to-five-year retrospective tax and cashflow audits to compare personal versus company ownership – factoring in the April 2027 rate increases and mortgage interest relief restrictions. This allows landlords to make informed, data-led decisions rather than reactive ones.
Start Planning Now
With just over a year until implementation, early planning creates flexibility and optionality. Waiting until 2027 may significantly reduce the available routes and increase immediate tax exposure.
If you would like clarity on how these changes will affect your portfolio – and whether incorporation or restructuring could protect your returns – speak directly to David Herd, Group Partner at Champion.
Contact David on 0161 702 3500 or email david.herd@championgroup.co.uk to arrange a confidential discussion and ensure you are positioned as efficiently as possible ahead of April 2027.
Planning now means protecting tomorrow’s returns.
