If you own rental properties or high-value residential assets, Chancellor Rachel Reeves’ Autumn Budget 2025 has introduced some significant changes that will affect your tax position. While many landlords may breathe a sigh of relief that National Insurance wasn’t extended to rental income (as widely rumoured), the Budget still delivers targeted increases that will impact your bottom line.
Let me walk you through what’s changed, who’s affected, and most importantly, what strategic options you should be considering.
Overview of the changes
The Budget represents a clear policy direction: the government is narrowing the gap between rates on earned income and what it terms “passive income” from assets like property. The changes will increase the overall burden to a record high of 38% of GDP by 2030-31, with property investors bearing a portion of that increase.
The good news? Stamp duty reform didn’t materialise, and the feared National Insurance charge on rental profits was avoided. The less good news? If you’re a landlord or own a high-value property, you’ll be paying more from 2027 and 2028 onwards.
Property Income Tax
This is the big one for landlords. From 6 April 2027, property income tax rates will increase by 2% across all bands. The new rates will be:
- Basic rate: 22% (up from 20%)
- Higher rate: 42% (up from 40%)
- Additional rate: 47% (up from 45%)
Importantly, these are separate rates specifically for property income. Your salary and other earned income will continue to be taxed at the standard income rates. The 2% rise will also apply to savings and dividends (from April 2027), but it’s the property element that most directly impacts landlords.
The rise is expected to generate around £500 million annually in additional revenue. However, if you operate through a limited company, these changes may not directly affect you, as your rental income is subject to corporation tax instead (currently capped at 25%).
If the plan is to draw regular profits from the limited company in the form of dividends, then this income will be subject to the 2% increase in dividend tax from April 2026.
“Mansion Tax” (High-Value Council Tax Surcharge)
Homes valued over £2 million will pay an annual surcharge on top of council rates, starting from April 2028. The charges are structured in bands:
- £2m – £2.5m: £2,500 per year
- £2.5m – £3m: £5,000 per year (estimated from the banding structure)
- £3m – £5m: Additional tiered increases
- Over £5m: £7,500 per year
This charge will be paid by the property owner, not the occupier. If you’re a landlord with a high-value rental property, this is an additional cost to factor into your yield calculations. Less than 0.5% of homes are directly affected, with the majority concentrated in London and the South East.
National Insurance: What didn’t change (but may in future)
There was significant speculation that National Insurance contributions would be applied to rental income, which would have been devastating for many landlords. This didn’t happen. The government chose instead to raise the income rates on property income.
However, I’d suggest keeping an eye on this for future budgets. The OBR noted that this successive eroding of private landlord returns will likely reduce rental supply over the longer run, and if the government faces continued revenue pressures, extending National Insurance to rental income remains a potential lever they could pull. For now though, rental income remains outside the scope of National Insurance contributions.
Who is impacted and how
Individual Landlords
If you own property in your personal name, you’ll be most significantly affected. The 2% increase applies whether you own one property or twenty. Combined with the existing Section 24 mortgage interest relief restrictions (which only allow tax relief at basic rate on mortgage costs), margins are getting tighter.
For a higher-rate taxpayer with £50,000 in rental profit, this change alone means an additional £1,000 annually. Over a ten-property portfolio, those numbers compound quickly.
Limited Company Landlords
The good news is that these new property income rates don’t apply to you. Your rental profits continue to be taxed at corporation rates (19% for profits under £50,000, 25% for profits over £250,000). You can also still deduct 100% of mortgage interest as a business expense, which individual landlords cannot.
This Budget makes the incorporation route even more attractive from a pure taxation perspective. But as mentioned previously be aware of the increase in dividend taxes.
High-Value Property Owners
Whether you’re a landlord or owner-occupier, if your property is worth over £2 million, you’ll face the new annual surcharge from 2028. The mansion levy is charged to owners rather than occupiers, so even if you live in the property yourself, you’ll be paying this charge.
The Rental Market More Broadly
It’s worth noting that these changes don’t happen in isolation. The OBR expects these costs to end up being passed on to tenants in the form of higher rents, though there may be some offsetting downward pressure on house prices. If you’re concerned about tenant affordability, this is something to factor into your planning.
Strategic Options to Consider
Given these changes, what can you actually do about it? Here are the key strategies worth exploring:
1. Review portfolio profitability under new rates
Start by running the numbers on each property. Under the new rates from April 2027:
- What’s your actual net yield after the higher liability?
- Are there properties where you’re now running at barely break-even?
- Which properties in your portfolio are still performing well, and which might be candidates for disposal?
This exercise might be uncomfortable, but it’s essential. Some landlords will find that certain properties no longer make financial sense to hold.
If disposing of residential property, then any capital gain will need to be reported and tax paid within 60 days of sale.
2. Explore Incorporation or Restructuring
The case for operating through a limited company has strengthened with this Budget. However, incorporation isn’t a decision to take lightly. You’ll potentially face:
- Capital Gains Tax on transferring properties into a company (treated as a disposal)
- Stamp Duty Land Tax on the purchase by the company (including the 5% surcharge for additional dwellings)
- Mortgage refinancing costs as you’ll to secure new lending in the name of the company
For larger portfolios or landlords with significant future acquisition plans, these upfront costs can still be worthwhile. For smaller portfolios, the maths may not stack up. This really is a case where professional advice is essential – the decision depends entirely on your individual circumstances.
There are incorporation reliefs available to defer capital gains tax or reduce stamp duty in very specific circumstances, please talk to your advisor as to whether you would qualify to claim these reliefs.
3. Consider refinancing or higher-yield strategies
Some landlords may look at strategies like Houses in Multiple Occupation (HMOs) or student lets, which typically command higher rents and potentially better yields.
A word of caution though: these strategies aren’t a silver bullet. HMOs and student properties can have significantly increased running costs (higher wear and tear, more frequent tenant turnover, additional licensing requirements) that can eat away at those higher headline rents. You’ll also typically need specialist lenders for HMO mortgages, which can be more expensive and restrictive than standard buy-to-let products.
If you’re going down this route, make sure your calculations account for the full picture of costs, not just the rental uplift.
4. Family Investment Companies and Trusts for long-term planning
For those thinking beyond just income considerations, Family Investment Companies (FICs) and trusts can be powerful tools, particularly when it comes to:
- Longer-term inheritance planning – getting assets out of your estate
- Succession planning – ensuring properties pass to the next generation efficiently
- Income splitting – distributing rental income to family members in lower brackets
These structures are more complex than simple incorporation and carry their own compliance requirements and costs. They’re typically most suitable for larger portfolios or where there are clear multi-generational wealth transfer objectives.
The key point is that property planning shouldn’t be looked at in isolation from your broader estate and succession strategy. These changes make it more important than ever to take a holistic view.
How we can help
As specialist property accountants and tax advisers, we work with landlords and property investors to navigate exactly these kinds of changes.
Whether you need support with portfolio analysis, exploring incorporation and restructuring options, modelling different scenarios with your actual numbers, or implementing changes efficiently, we’re here to help you make informed decisions about your property investments.
These changes are coming in April 2027 for property income and April 2028 for the mansion surcharge. That gives you time to plan, but not unlimited time. If you’d like to discuss how these changes specifically impact you and what your options are, please get in touch.
There’s no one-size-fits-all answer – it entirely depends on your individual circumstances, goals, and portfolio composition. But one thing is certain: with the landscape shifting, the landlords who plan proactively will be the ones who thrive, while those who wait and hope for the best may find themselves squeezed out of the market.
