Tax increases for landlords: Rental Income Tax and Council Tax Surcharge 

The Government will introduce a new income tax rate on rental property income from April 2027 alongside introducing a High Value Council Tax Surcharge from 2028 for homes over £2 million.  

Landlords and high-value property owners face higher costs as part of these changes and should review their property portfolios, tax planning, and potential impacts on long-term financial strategies. 

Tax on income from rental property: 

The Government has announced further tax increases for landlords, set to take effect from April 2027. Under the new rules, individual landlords earning income from property, such as rental income, will face higher income tax rates across all bands. 

• Basic Rate taxpayers will see their tax rate on property income rise from 20% to 22%. 

• Higher Rate taxpayers will see an increase from 40% to 42%. 

• Additional Rate taxpayers will see their rate rise from 45% to 47%. 

These changes will apply from 2027-28 tax year onwards and will not have any retrospective effect. The current tax reducer on mortgage interest will remain available and will be applied at 22% to align with the revised Basic Rate. 

Additionally, from April 2027, the income tax ordering rules will change. Personal allowance will be allocated first against employment, trading, or pension income before they can be applied to rental income, which may reduce the amount of property income sheltered from tax. 

Given these upcoming changes, landlords and property investors may wish to review their portfolios and consider appropriate tax-planning strategies to manage the potential impact. 

High Value Council Tax Surcharge: 

A new High Value Council Tax Surcharge (HVCTS) will be introduced for residential properties in England valued at £2 million or more. The surcharge aims to improve fairness within the current council tax system and generate additional funding for local services. 

Taking effect from April 2028, the surcharge will be payable by the homeowner rather than the occupier. It will be charged in addition to existing Council Tax liabilities. 

The annual surcharge will be based on the property’s value, as outlined below: 

• £2.0m – £2.5m – £2,500 

• £2.5m – £3.5m – £3,500 

• £3.5m – £5.0m – £5,000 

• £5m + £7,500 

Property valuations will be carried out by the Valuation Office Agency (VOA) and will be reviewed every five years, following an approach similar to the Annual Tax on Enveloped Dwellings (ATED) rules for high-value properties held within limited companies. 

The Government will also consult on a full range of reliefs and exemptions, as well as rules for more complex ownership arrangements, including companies, funds, trusts, and partnerships. 

Owners of high-value homes should begin assessing the potential financial impact and factor these additional costs into their long-term planning. 

Key takeaways

• Rental Income Tax Increases: From April 2027, landlords will face higher income tax rates across all bands, and personal allowances will be applied to other income first, reducing tax relief on rental income. 

• High Value Council Tax Surcharge: From April 2028, homeowners of properties valued at £2 million or more will pay an additional council tax surcharge, with amounts increasing by property value. 

• Financial Planning Required: Landlords and owners of high-value properties should review their portfolios and plan for the increased tax and surcharge liabilities to manage long-term financial impacts.