The Budget 2026 has introduced a further increase in the rates of income tax applicable to rental profits earned by individual landlords. Combined with the changes announced in the 2025 Budget, this will result in income tax rates on rental income being four percentage points higher than current rates from 6 April 2027.

Property investors have faced a steadily less favourable tax landscape in recent years, driven by restrictions to finance cost relief and heightened compliance obligations. The latest announcement continues this trend, further increasing the tax burden on individuals receiving rental income from residential and commercial property. 

Importantly, this measure relates specifically to taxation of property income rather than general income tax rates. The Government has maintained its commitment not to increase the headline rates of income tax on employment and trading income, while introducing separate rates for property income. 

What has changed? 

Budget 2026 confirms that legislation will be included in the Finance Bill 2026-27 to increase the rates of income tax applicable to property income from 6 April 2027. The measure applies across England, Wales and Northern Ireland. Scotland and Wales will have the ability to set property income rates through their devolved powers. 

The new rates from 2027/28 will be: 

*Current rates shown for comparison. 

The Government’s Budget documents state that this latest increase is in addition to the two percentage point increase previously announced at Budget 2025. As a result, landlords will face property income tax rates that are four percent higher than the rates currently applying to rental profits. 

At the time of the announcement, the measure is intended to be legislated through Finance Bill 2026-27. It is expected to take effect from 6 April 2027 but remains subject to the normal Parliamentary process.

Who is affected and what are the implications? 

The measure will primarily affect individual landlords holding residential or commercial property in their own names, particularly higher-rate and additional-rate taxpayers with significant rental income. It may also influence decisions around future property acquisitions, ownership structures, and the overall attractiveness of property investment. Corporate landlords are not directly affected, as companies continue to pay corporation tax rather than income tax on rental profits. Similarly, the announcement relates to property income and does not alter the taxation of employment income or trading profits. 

By way of a simple illustration, a higher-rate taxpayer with annual taxable rental profits of £50,000 would see their income tax liability on those profits increase from £20,000 to £22,000 from April 2027, resulting in an additional annual tax cost of £2,000. Actual outcomes will depend on an individual’s wider income position, available reliefs and how profits fall across the relevant tax bands. 

The increase may influence wider decisions around ownership structures, property investment returns and cash flow planning. Landlords with borrowing costs, planned capital expenditure or expansion projects may wish to revisit projected returns using the higher post-April 2027 tax rates. 

What should landlords do? 

Although the changes are not due to take effect until April 2027, landlords may benefit from reviewing their position before then. 

Some practical considerations include: 

• Updating cash flow forecasts and tax provisions for 2027/28 onwards 

• Reviewing whether properties are owned personally or through a company structure 

• Considering the interaction of rental profits with other sources of income 

• Monitoring the progress of Finance Bill 2026-27 and any further guidance issued by HMRC. 

Please note that any restructuring should be approached carefully. Property transfers, incorporation and ownership changes can trigger capital gains tax, stamp taxes and other consequences. Decisions should therefore be based on long-term commercial objectives rather than solely on the rate increase. 

Conclusion 

The 2026 Budget confirms a significant further increase in income tax on rental profits for individual landlords, with property income rates rising by another two percentage points from 6 April 2027. Combined with the increase announced at Budget 2025, affected landlords could face rates that are four percentage points higher than those applying today. 

While the legislation still needs to complete the Parliamentary process, landlords should use the lead time before April 2027 to understand the potential impact on their tax liabilities, investment returns and future property strategy.