Key Tax Changes

• New Tax Rates (from April 2027): Rental income will be subject to higher rates.

  • Basic-rate taxpayers: 22% (up from 20%).

  • Higher-rate taxpayers: 42% (up from 40%).

  • Additional-rate taxpayers: 47% (up from 45%).

• How it Works: Tax on rental income is calculated like any other income (employment or pension). You must complete a Self-Assessment tax return and add rental earnings to any other taxable income to determine your applicable tax rate.

• Mortgage Interest Relief: Landlords can no longer pay tax on rental income “net of mortgage costs”. Relief for mortgage interest payments is now given as a 20% tax credit.

Managing Your Taxable Profit

Landlords can reduce their tax bill by deducting “allowable expenses” from their total rental income, provided these costs are incurred “wholly and exclusively” for renting out the property.

• Common Allowable Expenses: Utility bills, property repairs, service charge costs, letting agent fees, and landlord insurance.

• Property Allowances:

  • Property Allowance: Can exempt up to £1,000 of property income per year.

  • Rent-a-Room Scheme: Allows owner-occupiers to receive up to £7,500 of rental income tax-free from a tenant living in their home.

• Multiple Properties: Profits and losses from multiple properties are typically pooled together and treated as income from one business. A loss from one property can offset the profit from another, potentially reducing the overall tax liability.

Overseas Properties

Profits from overseas rental property are still taxable in the UK, even if tax has already been paid abroad. The UK has double taxation agreements with many countries, which allows landlords to claim relief and avoid being taxed twice.

Action Point: Given the upcoming tax changes and complexity of current rules (especially regarding mortgage relief and multiple/overseas properties), landlords are advised to seek professional advice now.