The tax landscape for residential property landlords is set to become tougher over the next few years.
From April 2027, rental income will face higher income tax rates. Then from April 2028, an additional council tax style surcharge will apply to high value homes.
Taken together, these changes increase the cost of holding property and may prompt many landlords to reconsider how their portfolios are structured.
For some landlords, this raises a familiar question: Should property be owned personally, or through a limited company?
Higher tax rates on rental income
From April 2027, the income tax rates that apply specifically to rental income will increase by two percentage points.
The new rates will be:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
These rates apply to landlords who own property personally.
Properties held within a limited company are not affected by these changes and will continue to be taxed under corporation tax rules, currently 19% or 25% depending on profit levels.
This difference in tax rates means some landlords may find company ownership increasingly attractive.
Mortgage interest relief remains restricted
Mortgage interest relief remains restricted for individual landlords.
Instead of deducting finance costs when calculating taxable profit, landlords receive a tax credit from April 2027 of 22% of their interest costs (currently 20%).
In practice, this means tax is calculated on profits before mortgage interest. This can create a disconnect between the taxable profit and the actual cash available after paying the mortgage.
For landlords with larger mortgages, the impact can be significant and may increase the effective tax burden.
New surcharge for higher value homes
From April 2028, homes in England valued at £2 million or more will face an additional annual charge.
The proposed bands are:
- £2m to £2.5m: £2,500
- £2.5m to £3.5m: £3,500
- £3.5m to £5m: £5,000
- £5m and above: £7,500
Initial valuations will be based on April 2026 property values and will be reviewed every five years.
For owners of higher value property portfolios, this introduces another ongoing cost that may influence long term ownership decisions.
Why some landlords consider incorporating
Because companies are taxed differently, holding property within a company can offer certain advantages.
These can include:
- Full deductibility of mortgage interest
- Corporation tax rates that may be lower than personal income tax
- Flexibility over when profits are extracted
- The ability to transfer shares for succession planning
For landlords who intend to retain profits and reinvest in further property, the tax savings can sometimes be significant.
However, incorporation is not always straightforward.
The costs of transferring property into a company
Moving existing property into a company can trigger several tax charges.
Firstly, the transfer is treated as a disposal for Capital Gains Tax purposes. This means Capital Gains Tax may be payable even though the property has not actually been sold.
Secondly, the company may also have to pay Stamp Duty Land Tax on the market value of the property transferred, often at higher rates than those that apply to individuals.
For many landlords, Stamp Duty Land Tax can represent the largest upfront cost of restructuring.
Mortgage lenders must also approve the transfer of any existing loans, which may involve refinancing costs or early repayment penalties.
Ongoing obligations for property companies
Operating property through a company also brings additional administration.
This typically includes preparing annual accounts, filing Corporation Tax returns and maintaining company records. In some cases, landlords may also need to consider the Annual Tax on Enveloped Dwellings depending on the type of property involved.
For some landlords, these additional responsibilities may outweigh the tax advantages.
Planning opportunities for personal landlords
Not every landlord will want to move property into a company.
For those continuing with personal ownership, there are still planning opportunities available.
Property can be transferred between spouses on a no gain no loss basis, meaning no capital gains tax is triggered at the time of transfer. This can allow rental income to be shared in a way that makes better use of personal allowances and lower tax bands.
Where property is jointly owned, adjusting the beneficial ownership and submitting Form 17 to HMRC can allow income to be split in different proportions.
With the new tax rates arriving in April 2027, there is still time to consider whether these steps may be beneficial.
Capital Gains Tax planning
Capital Gains Tax on residential property currently remains at 18% within the basic rate band and 24% above it. Each individual also has an annual exemption of £3,000.
Planning strategies can include staggering property disposals across tax years to maximise annual exemptions, transferring ownership between spouses before a sale and keeping detailed records of improvement costs that can reduce the taxable gain.
Capital Gains Tax must also be reported and paid within 60 days of completion when selling residential property, so advance planning is important.
Reviewing your property structure
With changes beginning in April 2027 and April 2028, landlords still have time to review their position.
For some portfolios, incorporation may offer long term advantages, particularly where profits are intended to be reinvested. For others, particularly where rental income is needed for personal expenditure, the benefits may be less clear once dividend taxes and restructuring costs are taken into account.
What is clear is that property ownership structure is no longer something to set and forget. Reviewing cashflow, understanding the cost of restructuring and considering long term plans will help ensure property portfolios remain sustainable in a more demanding tax environment.
Speak to the Seavor team
If you own residential property and are unsure whether your current structure is still the most tax efficient, it may be a good time to review your position.
The SeavorChartered team works with landlords and property investors across the region to help them understand the tax implications of their property portfolios and plan for the future.
If you would like to discuss your situation, please get in touch with our team. We would be happy to help you explore your options and ensure your property strategy remains aligned with your long term plans.
