Landlords who inherited a property or rented out a former home could be among those most affected by the Autumn Budget's changes to property income tax, according to a property expert.
Elliot Castle, CEO of We Buy Any Home, has warned that so called accidental landlords, who did not originally intend to enter the rental market, could face significant increases in their tax bills from April 2027.
Under measures announced in the Budget on 28th October, property income tax rates in England, Wales and Northern Ireland will rise to 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers from 6th April 2027.
Castle said the changes could have a particularly significant impact on landlords who own properties in their personal names and receive rental income alongside their regular salary.
He explained that accidental landlords are often people who have inherited a relative's property or chosen to let out their previous home rather than sell it.
Castle said: "Accidental landlords hold the property in their own name, often alongside a full-time job. They’re not property tycoons who own huge apartment complexes. Their rental income is added on top of their salary, so an ordinary teacher or nurse with an inherited flat could be taxed at a whopping 44% from April 2027 onwards."
For landlords whose income already places them in the higher rate tax band, rental profits could be subject to the new 44% rate.
Those with mortgages may face additional pressure because individual landlords cannot deduct residential mortgage interest when calculating taxable rental profits. Instead, they receive a tax reduction based on 20% of eligible finance costs, subject to certain limits.
This means some landlords could face a tax liability on income that has already been used to cover mortgage interest payments.
Castle said: "They can end up paying tax on money that’s gone straight to the bank."
The changes to property income tax will affect individual landlords, while rental profits earned through limited companies remain subject to corporation tax rules.
Castle has urged landlords to assess their financial position ahead of the new rates taking effect, particularly those who manage a single rental property alongside their main employment.
He said: "My advice to anyone in this position is to work out what the property earns you after tax. Then speak to a financial advisor about your options, whether that’s shared ownership with a spouse, reviewing the rent or deciding whether to sell, before the new rates bite."
Castle recommends that landlords begin by reviewing their rental income, mortgage payments, maintenance costs and other expenses to establish how much profit their property generates after tax.
He also suggests reviewing ownership arrangements, particularly where a spouse or civil partner pays a lower rate of tax. However, any transfer of ownership would need to take account of the mortgage lender's requirements and potential tax implications.
Landlords could also consider reviewing their rents, although increases must comply with the Renters' Rights Act. In England, landlords can generally only increase rent once a year using the prescribed process, with at least two months' notice.
Castle also advises landlords to review their paperwork and ensure they are claiming allowable expenses, including qualifying repairs, letting fees, insurance and safety certificates.
For those considering leaving the rental market, he recommends seeking advice on the timing of a sale and any potential Capital Gains Tax liability.
Landlords selling a property may need to report and pay Capital Gains Tax within 60 days of completion. Castle said: "Selling is a valid choice, and I know it’s not an easy decision."
