Budget 2025 – 2% rise in income tax on property

Budget 2025 – 2% rise in income tax on property

The chancellor announced in the November 2025 budget that for the first time; there will be separate tax rates for property income affecting earnings from renting lands and buildings.

From April 2027, income tax on property rental and income will fall under a new property tax.

The property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%.

Finance cost relief will be set at the separate property basic rate (22%). This provides unincorporated landlords income tax relief at the basic rate on their mortgage interest costs.

A private client tax partner advised: ‘The landlord market has suffered from significant tax and regulatory changes over the last decade and there are concerns about the knock-on effect that an income tax rise of 2% could have for tenants, especially if the number of properties available to rent decrease due to landlords continuing to exit the market.’

The rationale given for the tax increase on property and investment income is that it is not subject to national insurance, the top rate of which is 2%.

The changes to property income rates will apply in England and Northern Ireland. These powers are devolved in Scotland and Wales.

This will raise an expected £600m a year in additional taxes and will hit hundreds of thousands of landlords across the country.