Budget 2025: What the Income Tax Rise Means for Landlords
The Budget 2025 confirmed that landlords will face increased income tax on their property income from April 2027. This change forms part of a broader plan to raise revenue and tighten rules on property ownership.
It follows several years of reforms that have already reduced profit margins for many landlords. These upcoming changes also sit alongside the shift to Making Tax Digital, which will require digital record-keeping for landlords within the income thresholds.
This update offers a clear overview of what is changing and how organised bookkeeping, supported by MTD-ready systems, can help you plan.
Property income tax rates will rise in 2027
The Chancellor announced that income tax on property income will increase by two percentage points from April 2027. The new rates will be:
- 22% for basic rate taxpayers
- 42% for higher-rate taxpayers
- 47% for additional rate taxpayers
For many landlords, these increases create another reduction in net returns. The OBR expects rental prices to rise, with typical rents in England predicted to increase by £20 to £25 per month.
For landlords who will soon be required to keep digital records under Making Tax Digital for Income Tax, keeping them updated will become even more critical. This helps you monitor how these higher tax rates affect your overall position.
Why this matters for landlords
The rise follows earlier changes to Mortgage Interest Relief and Stamp Duty, both of which raised the cost of holding rental property. The Office for Budget Responsibility noted that these measures have reduced landlord returns over the past decade.
It also warned that a long-term decline in rental supply could push rents higher if tenant demand continues.
For landlords with tight margins, even small changes in costs or taxes can shift long-term plans. Clear, accurate and digital bookkeeping helps you understand these shifts early. This is especially important as MTD introduces quarterly updates and stronger expectations for real-time record-keeping.
New High Value Council Tax Surcharge
Budget 2025 introduced an annual surcharge on residential properties valued at over £2 million. This will begin in April 2028 and will be based on 2026 valuations.
The surcharge will be banded:
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£2,500 per year at the lower end
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Up to £7,500 for properties above £5 million
This charge applies to property owners, not council taxpayers, which means landlords will see additional yearly costs. If you hold high-value property, accurate valuations and clear digital records will help ensure the correct surcharge is applied and correctly reported in your MTD submissions when required.
Reaction from industry bodies
Industry groups have raised concerns about the impact on both landlords and tenants. The NRLA has warned that the changes could reduce the number of available rental homes at a time when demand remains high.
Forecasts show that the UK will need close to one million new rental homes by 2031. Rising taxes, higher costs and increased compliance requirements may make it harder for landlords to keep properties in the private rented sector.
With MTD on the horizon, the need for organised, digital and up-to-date financial records will only grow.
What this means for your bookkeeping
New tax rates, added surcharges and the gradual introduction of Making Tax Digital mean that clean, accurate bookkeeping has never been more critical. Having organised digital records will help you understand the impact of rising costs and prepare early.
Here are a few practical steps to consider:
- Review your rental income and expenses to understand your current margin
- Keep digital records updated so you can model the impact of higher tax rates
- Track property costs such as repairs, mortgage interest and fees
- Store valuation documents securely for future council tax surcharge checks
- Plan for cash flow changes from 2027 to 2028 and how they link to quarterly MTD reporting
Good information helps you manage change with confidence. It also gives you a clearer view when deciding whether to adjust rents, reinvest, or review parts of your portfolio.
How Rosemary Bookkeeping can support landlords
These changes create more pressure on already stretched margins. A structured and digital-first bookkeeping approach helps you stay in control.
Your local Rosemary Bookkeeper can help you:
- Maintain clean and accurate property income records
- Prepare for changes to tax and surcharges
- Keep digital records organised for future MTD requirements
- Track rising costs in a consistent and straightforward way
If you want support preparing your records or planning for the new rules, we are here to help.
Find your nearest Rosemary Bookkeeper today.
