Rental income tax is rising from 2027 — what contractor-landlords need to do now
Direct Answer
The Chancellor has announced that income tax rates on rental income will increase from April 2027: basic rate from 20% to 22%, higher rate from 40% to 42%, and additional rate from 45% to 47%. For contractors who also own buy-to-let property, this compounds an already complex tax position. You have roughly a year to review your structure and ensure you are not paying more than you need to.
The tax change in plain English
The Chancellor's announcement means a straightforward increase in the income tax rates that apply to rental profits. This is separate from the corporation tax your limited company pays — it applies to rental income you receive personally.
The numbers are not enormous in isolation. A contractor earning £15,000 in rental profit at higher rate will pay an extra £300+ per year from 2027. But for landlords with larger portfolios — or those already close to the additional rate threshold — the compounding effect is more significant.
Crucially, this comes on top of the Section 24 mortgage interest restriction that has been in place since 2020. Under Section 24, personal landlords can only claim a 20% tax credit on mortgage interest — not a full deduction. If you are a 40% taxpayer, you are effectively paying tax on income you have already spent on mortgage payments. The new rate increase makes that calculation worse.
The contractor-landlord overlap: why it matters
Many IT and professional contractors run a limited company for their contracting income and also own one or more buy-to-let properties personally. This creates two separate income streams with their own tax rules — and they interact.
Your contracting income (salary and dividends from your limited company) and your rental profits are all added together when calculating your personal income tax liability. If your contracting income already pushes you into the higher rate band (above £50,270 in 2026/27), every pound of rental profit is taxed at 40% — rising to 42% from 2027.
The NRLA's latest member survey found that 65% of landlords planning rent increases cited the forthcoming tax rise as a primary driver. The OBR confirmed the tax increase will partially shift onto tenants through higher rents — expected to rise by £20–25/month nationally, and £40+/month in London. Meanwhile, 33% of landlords are planning to sell one or more properties, which will put further upward pressure on rents regardless of the tax change.
What you can do before 2027
You have approximately a year before the new rates take effect. That is enough time to review your options and make considered decisions rather than reactive ones.
Review your salary/dividend split: Your personal income tax position depends on the total of your salary, dividends, and rental profits combined. If you have flexibility over how much dividend income you take from your company, there may be scope to adjust this to manage which tax band your rental income falls into. This requires careful modelling — see our salary and dividend guide for the framework.
Consider pension contributions: Making pension contributions through your limited company reduces your company's corporation tax bill and does not form part of your personal income. This can, in some cases, bring your total personal income below higher rate thresholds.
Property incorporation — with caution: Holding buy-to-let through a limited company allows full mortgage interest deduction, which becomes more valuable as rates rise. But transferring existing properties triggers Stamp Duty Land Tax on full market value and potentially CGT. For most people with one or two existing properties, the break-even point is many years away. This is not a decision to make without proper advice and specific numbers for your situation.
Ensure mortgage interest is correctly claimed: Even under the restricted Section 24 rules, you are entitled to a 20% tax credit on your mortgage interest. If this has not been correctly applied in previous returns, that is worth addressing now.
How Autobooks helps contractor-landlords
Autobooks specialises in one-man limited company contractors — and we understand that many contractors also have rental income, investments, and other personal tax obligations alongside their company affairs.
Our Gold plan at £89+VAT/month includes your personal Self Assessment (SA100) as standard, not as an add-on. When we prepare your return, we handle your salary, dividends, and rental income together — ensuring the interactions are correctly accounted for and that legitimate reliefs are claimed.
If you want a broader review of your overall structure — company, property, and personal tax — book a free call and we can walk through the options. We will tell you honestly whether there is anything worth changing, and what it would cost you to do it. See our pricing page for full details of what is included.
Contractor and landlord? Don't let rising rental taxes catch you out.
Book a tax review with AutoBooks and make sure your structure is working efficiently.