If you’re a landlord, Budget 2025 brings more bad news. The government has introduced a new tiered tax system specifically for property income, making buy-to-let investment even less attractive. Combined with a new council tax surcharge on high-value properties, the message is clear: property investors are in the firing line.
The Headline Change: New Property Income Tax Rates
The most significant announcement for landlords is the creation of separate tax rates specifically for property income, starting in April 2027. Here’s what you’ll pay:
- Property Basic Rate: 22% (vs standard income tax basic rate of 20%)
- Property Higher Rate: 42% (vs standard higher rate of 40%)
- Property Additional Rate: 47% (vs standard additional rate of 45%)
This means property income will be taxed 2 percentage points higher than employment or self-employment income at every level. The government is explicitly taxing property income more heavily because, unlike wages, it doesn’t attract National Insurance contributions.
What Does This Mean in Practice?
If you’re a higher-rate taxpayer with £20,000 of rental income (after allowable expenses):
- Current system: Tax at 40% = £8,000
- From April 2027: Tax at 42% = £8,400
- Extra cost: £400 per year
For additional rate taxpayers with £50,000 of rental income:
- Current system: Tax at 45% = £22,500
- From April 2027: Tax at 47% = £23,500
- Extra cost: £1,000 per year
Remember, this comes on top of previous restrictions on mortgage interest relief, which has already dramatically reduced returns for leveraged landlords since 2017.
Does This Apply to Limited Companies?
This is crucial: the new property income tax rates apply to individuals only (and partnerships/sole traders). If you hold properties through a limited company, you’ll continue to pay Corporation Tax at 25% on rental profits, not these new property income rates.
This significantly widens the gap between individual ownership and corporate ownership of rental property, likely accelerating the trend of landlords incorporating their portfolios.
The Council Tax Surcharge on High-Value Properties
From April 2028, the government is introducing a High Value Council Tax Surcharge (HVCTS) on residential properties worth £2 million or more in England.
The Rates
- £2-3 million: £2,500 per year
- £3-4 million: £5,000 per year
- £5 million+: £7,500 per year
Key Details
- This is in addition to existing council tax, not a replacement
- It applies to fewer than 1% of properties
- It’s levied on property owners, not occupiers
- If you rent out a high-value property, you pay it, not your tenant
- Based on updated valuations (not the 1991 values used for standard council tax)
Who's Affected?
While only a small proportion of properties nationally are affected, this has significant implications:
- Prime central London landlords
- Owners of high-end country properties
- Landlords with property portfolios including high-value assets
- Anyone holding property as an investment rather than a home
- The government will consult on implementation in the new year, including provisions for those who need support paying the charge.
Other Property-Related Changes
Capital Gains Tax: No Change (This Time)
CGT rates on property remain unchanged in this budget – residential property CGT was already increased to 18% (basic rate) and 24% (higher rate) at Autumn Budget 2024. These rates remain in place.
However, remember that from April 2027, pensions will be included in inheritance tax calculations, which may affect your estate planning if property is part of your wealth portfolio.
Savings and Dividend Income Also Targeted
The government is applying the same 2 percentage point increase to savings income tax (from April 2027) and dividend income tax (from April 2026). If you receive income from these sources alongside rental income, you’re facing multiple tax rises.
The new dividend rates from April 2026:
- Ordinary rate: ~10.75% (up from 8.75%)
- Upper rate: ~35.75% (up from 33.75%)
Council Tax Increases: What's Happening?
The budget document doesn’t specify nationwide council tax increases, but it does note:
- Local authorities will have flexibility to set their own rates
- The HVCTS will collect revenue “to support funding for local services”
- Core council tax policy remains with local councils
Individual councils will announce their own changes for 2026-27 in the coming months. Historically, councils have been allowed to increase council tax by up to 3% (or up to 5% including social care precept) without a referendum.
What Should Landlords Do Now?
1. Review Your Portfolio Structure
If you hold properties personally and you’re a higher or additional rate taxpayer, the case for incorporation just got stronger. The tax difference between 42-47% (personal) vs 25% (corporate) is substantial, though incorporation costs and CGT on transfer must be factored in.
2. Model the Numbers
Calculate your actual tax increase based on your rental income and tax band. Don’t forget this adds to your already-squeezed margins from:
- Restricted mortgage interest relief
- Higher mortgage rates than 2-3 years ago
- Increased regulation and compliance costs
- Potential rent controls in some areas
3. Consider Your High-Value Properties
If you own properties worth £2m+, factor in the HVCTS from April 2028. For a £2.5m rental property:
- New HVCTS: £2,500/year
- On a 4% gross yield: £100,000 rental income
- After the HVCTS, that’s 2.5% knocked off your return before any other costs
4. Review Your Exit Strategy
With returns continuing to be squeezed and the regulatory burden increasing (like the Renters’ Rights Act 2025), some landlords will conclude it’s time to exit. If that’s you, remember:
- CGT on property sales: 18% (basic rate) or 24% (higher rate)
- Annual CGT allowance: £3,000 (tax year 2025-26)
- Timing disposals across tax years can help manage CGT liability
5. Don’t Forget the Renters’ Rights Act
Not a budget measure, but the Renters’ Rights Act 2025 is progressing, which will:
- Abolish Section 21 “no fault” evictions
- Allow tenants to challenge unreasonable rent increases
- Increase security for tenants (and reduce flexibility for landlords)
The Bottom Line
The government’s approach is clear: income from property should be taxed more heavily than income from work. Whether you agree with the policy or not, the financial reality for landlords is increasingly challenging:
- Higher taxes on rental income from April 2027
- Additional property charges for high-value assets from April 2028
- Reduced returns from previously implemented mortgage interest restrictions
- More regulation through the Renters’ Rights Act
For some landlords, particularly those with highly leveraged portfolios or those in higher tax bands, the sums may no longer add up. For others, incorporation or portfolio restructuring may offer a way forward.
One thing is certain: the “golden age” of buy-to-let investment is firmly in the rearview mirror.
Considering your options as a landlord? Whether it’s incorporation, portfolio restructuring, or exit planning, Acorn Finance can help you navigate these complex changes.
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