John Healey’s hotly anticipated Budget has brought important announcements that will have implications for property investors and landlords.
The core shifts in policy are an increase in tax on rental income and stricter regulatory scrutiny, which may warrant a review of how landlords manage their portfolio.
Rise in tax on rental income
While rental income is currently taxed at the same rates as earned income, higher rates of Income Tax on property income will be introduced from 6 April 2027.
By treating property income separately from earned income, landlords and investors will pay Income Tax at rates four percentage points higher than those applied to earned income.
This change will impact the potential profit margins of almost every landlord, which have already been squeezed in recent years by elevated mortgage rates and stricter regulation.
The new tax rates are as follows:
- Basic rate – 20 per cent increases to 24 per cent
- Higher rate – 40 per cent increases to 44 per cent
- Additional rate – 45 per cent increases to 49 per cent
Moreover, landlords with high-value property should be aware of the High Value Council Tax Surcharge, an annual charge on residential properties in England worth £2 million or more, which is due to arrive in April 2028.
Separately, many councils already charge a premium of up to 100 per cent on homes that have been left empty and unfurnished for 12 months or more.
Increased scrutiny from HMRC
Aside from the increase in tax, the Government is moving towards greater transparency on rental income and compliance monitoring.
HMRC will now require third parties, including letting agents and platforms, to supply rental income data, making undeclared rent much easier to identify.
Furthermore, the Government is investing heavily in compliance enforcement, with hundreds of new compliance officers tasked with enforcing regulation, while the Government expands the use of technology and data to reduce underpaid tax.
The increased scrutiny means landlords and property investors will need to ensure record keeping is accurate and errors are mitigated to reduce the potential for a compliance check.
Alongside landlord registration requirements and Making Tax Digital reforms, operating as a landlord is becoming markedly more regulated and subject to greater scrutiny than before.
