Beating the landlord tax hikes

Prior to the Budget, there had been speculation that the NI net would be widened to include income from property. The Chancellor opted instead to introduce a new property rate of tax from 6 April 2027, the rates of which will be 2% higher than the standard rates of income tax, meaning that property income will be taxed at 22%, 42% or 47% where it falls within the basic, higher or additional rate bands respectively. The change only affects unincorporated landlords.

Currently, allowances and reliefs are allocated so as to minimise the tax that is payable. A further sting in the tail is that these rules are to be changed so the personal allowance is set first against employment, trading and pension income, rather than property or savings income, which will be taxed at a higher rate.

Unincorporated landlords receive relief for interest and finance costs as a tax reduction at the basic rate. When the property tax rates come into effect, relief will be given at the basic property rate of 22%.

Tip. Where a property is jointly owned, making a Form 17 election (see Further information ) to change the split of income from 50:50 may produce a tax saving. Spouses and civil partners can transfer property interests between them free from capital gains tax to change their beneficial shares.

Example. Andrew and Agnes are married. Andrew is a higher rate taxpayer and Agnes’ income is under her personal allowance. They jointly own a rental property and profits are automatically split 50:50. The property can either be transferred into Agnes’ sole name or they can change the split of ownership and use Form 17 to change the split of income to, e.g. 99:1 in favour of Agnes. Either route will reduce the overall income tax liability.

Consider delaying non-urgent repairs and other deductible expenses so they fall after 6 April 2027 and are relieved at the new, higher rates.

Corporate landlords

While there’s no change to corporation tax rates, corporate landlords are still hit by the increase in dividend tax rates from 6 April 2026.

From 6 April 2026, the dividend ordinary rate and the dividend upper rate are increasing by 2% to, respectively, 10.75% and 35.75%. The dividend upper rate remains at 39.35%.

Where the property company has retained profits, savings can be made by paying higher dividends before 6 April 2026, to pay tax at the lower rates.

Ensure all shareholders’ dividend allowances and basic rate bands are utilised, tailoring dividends where an alphabet share structure permits this or transferring shares between spouses/civil partners.

Shares can be transferred to other individuals e.g. unmarried partners; there’s only capital gains tax if the gain is more than your £3,000 allowance. Don’t forget about outstanding directors’ loans which will cost more to repay via dividend after 6 April.