Property income

Landlords, savers and trustees are facing another round of tax increases following the Chancellor’s latest Budget. Building on measures announced in 2025, the government has confirmed further rises to the tax rates applying to property and savings income from April 2027. Combined with changes to personal allowances, the measures could significantly increase tax bills for some individuals and trusts. With many already navigating regulatory change and new reporting requirements, now may be the time to review whether existing investment and ownership structures remain fit for purpose.

Tax changes for landlords

Unincorporated landlords will also have their own separate tax rates for property income from April 2027. For landlords property income will be subject to rates of 24% (basic rate), 44% (higher rate) and 49% (additional rate). As with savings income, the 2025 Budget had provided for a two percentage point increase. Today’s announcement therefore doubles the increase landlords had previously been expecting.

Finance costs, such as mortgage interest, will be relieved at 24% as a tax credit. The existing £1,000 property allowance and the rent a room relief will remain. While the trading allowance for those with trading income is set to increase to £3,000 from £1,000, there is no corresponding increase to the property allowance.

Personal allowances

At present, a taxpayer is broadly free to allocate their tax reliefs and allowances how they wish. From April 2027, the personal allowance must be allocated against pension, employment or trading income first. This is to ensure the increased tax rates for other types of income will apply where possible.

Impact on landlords

Landlords have suffered a raft of tax increases in recent years, including the restriction on mortgage interest relief. This will be a further impact to absorb.

Some landlords may therefore look again at incorporating their portfolios, given the growing differential between income tax and corporation tax rates. However, incorporation can have significant tax consequences and will not be suitable for everyone, particularly where significant profits need to be extracted from the company. From 6 April 2026, incorporation relief against capital gains tax on transferring assets into a company no longer applies automatically – it will need to be claimed, potentially giving most visibility to HMRC to challenge claims.

Tax is only part of the picture for landlords

It comes against a background where landlords are already dealing with regulatory change as well as making tax digital. The cumulative effect matters. A property that made complete commercial sense 10 years ago may not necessarily produce the same return today.

That doesn’t mean landlords should rush to sell. A sale can itself produce a capital gains tax liability, and the quality and future prospects of the investment still matter. It does mean that landlords should periodically review their property portfolio in light of the tax and compliance changes.

There were no changes to the rates of CGT that apply to most property disposals. Where CGT is due on the sale of a residential property, it will need to reported to HMRC and the CGT will need to be paid within 60 days of the completion of a disposal.

Impact of tax changes on trusts

The higher rates will also apply to savings and property income received by trusts. From April 2027, the trust rate for discretionary savings and property income will therefore be 49%, up from 45%. The trust rate applying to dividend income remains at 39.35%. There will be partial relief for trust management expenses made out of income. This will have an impact on the trust tax pools which are used to offset tax on distributions to beneficiaries.

Tax rises in trusts usually mean that there is often insufficient tax in brought forward trust tax pools to distribute all of the income without incurring a tax charge. Trustees will need to consider carefully planning how they deal with trust distributions and income accounts, particularly where there is a small tax pool brought forward.

There will be an impact on the anti-avoidance tax provisions where there are capital payments made to settlors of a trust, which can include the repayment of loans. The rules are complex but often the tax impact is neutral, unless there is a change in tax rates. Careful consideration will be needed here.

Planning and advice

Wealthier individuals who rely on profits from a rental portfolio or a taxable investment portfolio will be particularly hit by the tax changes. For illustration, somebody with £100,000 of taxable rental profits and savings income could ultimately pay around £4,000 more income tax a year than under the rates applying before these changes began. Of that increase, around half arises from the additional two percentage points announced today. The actual impact will depend on the individual’s wider income, available allowances and the mix of their income.

For people with significant savings or rental portfolios, the next few months provide an opportunity to understand what the new rates actually mean in pounds and pence before making decisions. In some cases, the conclusion will be to change nothing. In others, today’s Budget may be the trigger for a wider review.