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It was announced in the Budget on 26 November 2025 that, from 6 April 2027, an extra 2% Income Tax will be due on any taxable rental profits that you receive.

The first thing to note is that there are two allowances which may mean that you do not have to pay any Income Tax on your rental income.  The first is the £1,000 Property Allowance which allows people with rental income of less than £1,000 in a tax year to not have to declare this to HM Revenue & Customs, which means that it is received tax free.

The second is ‘Rent a Room’ relief, which exempts from Income Tax up to £7,500 of income from letting out furnished accommodation in your home.

Aside from these two allowances, if you have taxable rental income then the Income Tax rates in place now, and after 6 April 2027, are as follows:

So, for example, if you are a basic rate taxpayer and currently have rental profits of £10,000, your Income Tax liability on this would be £2,000 (£10,000 x 20%).

For the tax year 2027/28 onwards, the same £10,000 of taxable rental profits would generate an Income Tax liability of £2,200 (£10,000 x 22%), so an increase of £200.

If you are a higher rate taxpayer, and currently have rental profits of £10,000, your Income Tax liability on this would be £4,000 (£10,000 x 40%).

For the tax year 2027/28 onwards, the same £10,000 of taxable rental profits would generate an Income Tax liability of £4,200 (£10,000 x 42%), so an increase of £200.

An additional rate taxpayer would currently pay tax of £4,500 (£10,000 x 45%) on £10,000 of rental profits, but from 2027/28 onwards this would increase to £4,700 (£10,000 x 47%), so again an increase of £200.

A few points to note on the above changes are that these are only currently set to apply to taxpayers in England and Northern Ireland.  The Government will engage with the devolved Governments of Scotland and Wales to provide them with the ability to set property tax rates in line with their current Income Tax powers.

Also, tax relief for interest incurred on mortgages or property loans will, from 6 April 2027, increase from 20% to 22%.  This is a flat rate that applies regardless of whether you are a basic, higher or additional rate taxpayer.

If you have any queries about how the increased tax rate on rental profits will impact you, then please do not hesitate to give us a call on 01228 711888 or 01387 270340

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