NEW HIGHER TAX RATES FOR PROPERTY AND DIVIDEND INCOME FROM 2026 AND 2027
How the 2025 Budget reshapes tax for landlords, investors and business owners
The 2025 Budget introduced a significant shift in how the UK taxes property income and dividends.
While the Chancellor can still say the “main” income tax rates have not been raised, the picture is very different for landlords, investors, and company owners.
Two of the most important changes are the new standalone tax rates for property income from April 2027, and the increase in dividend tax rates from April 2026. These measures sit alongside other reforms to savings income and the ordering of allowances, forming a coordinated move towards taxing investment and rental income more heavily than employment or trading income.
Below is an overview of what is changing, who is affected by the Autumn Budget, and what this may mean in practice.
New Tax Rates for Property Income (from 6 April 2027)
From the 2027–28 tax year, property income will be carved out into a separate tax banding system. The new rates are:
• Property basic rate: 22%
• Property higher rate: 42%
• Property additional rate: 47%
These will apply in England, Wales and Northern Ireland, with the UK government intending to give Scotland and Wales the scope to set their own property rates in line with their devolved income tax powers. The change covers both UK and overseas rental income received by individuals. Current reliefs such as the property allowance and Rent-a-Room relief remain in place. Interest restrictions continue to operate through a basic rate tax reducer, but will now apply at the higher 22% basic property rate.
Crucially, from 2027 the personal allowance and other reliefs will be set first against employment and trading income before being applied to property, savings and dividends. For many people, this will mean more of their rental income is taxed at the full new rates.
Higher Dividend Tax Rates (from 6 April 2026)
The 2025 Budget also confirmed an increase in dividend tax rates one year earlier, from April 2026:
• Ordinary (basic) dividend rate increases from 8.75% to 10.75%
• Upper (higher) rate rises from 33.75% to 35.75%
• Additional rate remains at 39.35%
The dividend allowance remains in place but continues to fall in real terms, meaning more investors will be paying tax on their portfolio income even before the higher rates take effect. For owner-managers, this makes dividend extraction more expensive and reduces the gap between taking profits as dividends versus salary. For private investors, it increases the value of ISAs, pensions, and other tax-advantaged wrappers.
Who Is Most Affected By The Autumn Budget Tax Changes?
These changes will be felt across a broad group of taxpayers:
• Landlords holding property personally, especially those with geared portfolios
• Individuals with overseas rental income
• Investors with taxable portfolios outside ISAs or pensions
• Owner-managers who extract profits through dividends
• Clients with mixed income streams where allowances currently shelter rental or dividend income
It is worth noting that, although targeted at “unearned” income, the burden will fall heavily on middle-income landlords and owner-managed businesses as well as higher-rate savers.
Other Emerging Themes
There are several themes emerging.
One might describe the measures as a form of “stealth” tax rise: the headline income tax rates are unchanged, but the effective tax pressure on rental and investment income increases sharply. Additionally, the changes continue a wider pattern of making the private rented sector less attractive for individual landlords, especially when layered on top of finance cost restrictions and tighter regulation. The new property rates add another layer of pressure on residential landlords and may accelerate longer-term trends towards incorporated or institutional ownership. Meanwhile, it is also worth highlighting the increased importance of using ISAs and pensions to shelter dividends, given the higher rates and shrinking allowances.
Practical Points and Planning Considerations
For clients affected by these measures, a review of structure and timing is sensible:
• Bringing forward dividends into the 2025–26 or 2026–27 tax years may reduce exposure to the new rates.
• Landlords should revisit incorporation analysis, especially where mortgages are large or profits are reinvested. While incorporation is not a universal solution, the new property rates change the numbers again.
• Clients with significant rental or investment income will want to make full use of pensions and ISAs before the higher rates apply.
• Mixed-income clients will need to reassess how their personal allowance interacts with their overall income profile from 2027 onwards.
• Cross-border landlords should note that Scotland and Wales may diverge from the rest of the UK when setting their own property income rates.
Conclusion
The new tax rates for property and dividend income represent some of the most consequential personal tax changes in this Budget. While framed as part of a wider effort to “rebalance” the system, they will result in higher tax bills for many landlords, investors and owner-managed businesses. Understanding the timing, structure and interaction with other allowances will be key to managing the impact.
Final Thoughts
If you have any queries about this article on property and dividend income tax changes or tax matters in the UK, then please get in touch below.
