Budget 2026: property income tax at 24%, 44% and 49%, and what it means for London landlords and shop-with-flat owners

Budget 2026 sets new income tax rates on property income of 24%, 44% and 49% from 6 April 2027. For London landlords who hold buildings in their own name, and particularly for owners of the classic parade building with a shop at street level and flats above, that is a permanent rise in the tax taken from every pound of rental profit. This article sets out what the Budget actually says, who it reaches, and why some business owners who currently rent premises to their own company may want to look again at how those premises are held.

What the Budget says

The measure is short. "From 2027 to 2028, the property basic rate will be 24%, the property higher rate will be 44%, and the property additional rate will be 49%. These rates will apply across England, Wales and Northern Ireland." It will be legislated in Finance Bill 2026-27 and takes effect from 6 April 2027 (Budget 2026, para 6.246).

How the increase is described needs care. Paragraph 6.246 talks about rates rising "by 2 percentage points". Paragraph 2.50 explains that Budget 2025 had already raised the rates on savings and property income by two points from April 2027, and that this Budget adds "a further two percentage points from that date" (Budget 2026, para 2.50). The clearest way to put it is this: from 6 April 2027, rental profit is taxed at 24%, 44% and 49%, compared with the 20%, 40% and 45% that apply to earned income. Whichever way the steps are counted, those are the rates a London landlord will be planning around.

The Treasury frames the change as narrow. It says "84% of income tax payers will be unaffected" and that around half the revenue is expected to come from the top 10% of households (Budget 2026, para 2.50). The measure is costed at £575m in 2028-29 (Budget 2026, Table 6.1 item 61). Savings income moves to the same 24%, 44% and 49% rates from the same date, UK-wide (Budget 2026, para 6.247), so cash sitting on deposit in a landlord's personal name is caught by the same logic.

Who it reaches in London

The rates apply to individuals who receive rental profit personally. In practice that covers:

• private landlords letting flats or houses in their own name or jointly with a spouse
• owners of shop-with-flat parade buildings who let both the commercial unit and the residential units personally
• business owners who own their trading premises personally and charge rent to their own company
• partnerships and LLP members, whose share of rental profit is taxed on them as individuals

The Budget does not say anything about landlords who hold property through a limited company. A company pays corporation tax on its profits rather than income tax, and the government is "capping the headline rate at 25%" (Budget 2026, para 2.54). So the new property rates, which are income tax rates, should not apply to rent received by a company. That is an inference from how the two taxes work rather than something the Budget document spells out, and the full picture for a company owner includes the tax paid when profits are drawn out as salary or dividends.

The shop-with-flat owner

London's high streets are lined with semi-commercial buildings: a Class E unit on the ground floor, two or three flats above, held freehold and let. Many are owned by individuals or families in their own names, sometimes for decades, without ever being restructured.

For that owner, the whole rent roll is property income. The rent from the café or the dry cleaner on the ground floor is taxed at the same new rates as the rent from the flats. There is no separate, lower rate for the commercial element.

There is one partial offset, though it lands with the tenant rather than the landlord. Small Business Rates Relief for retail, hospitality and leisure properties in England is being widened from 1 April 2027: 100% relief up to a rateable value of £18,000 and tapered relief up to £21,000 (Budget 2026, para 6.190). A ground-floor shop, café or salon that qualifies may pay less, or nothing, in business rates. That does not reduce the landlord's tax, but it makes the commercial unit cheaper to occupy, which can help with tenant retention and voids at the next lease renewal.

Illustrative example. A London landlord pays higher-rate tax and owns a parade building producing £30,000 a year of taxable rental profit across the shop and two flats. At 40%, the tax on that profit is £12,000. At the new property higher rate of 44%, it is £13,200: an extra £1,200 a year on the same building with the same tenants. The figures ignore finance costs, allowances and any other income, and are for illustration only.

The owner-occupier who rents to their own company

This is the group the change may matter to most, and it is easy to overlook. A common arrangement for London business owners is to own the workshop, office or shop personally and have the trading company pay a market rent. The rent is a cost to the company and income to the owner.

From 6 April 2027 that rent is taxed at the new property rates. A business owner already paying higher-rate tax on salary and dividends will pay 44% on the rental profit, or 49% at the additional rate.

The alternative is for the trading company itself to own the premises, financed with an owner-occupier commercial mortgage. In that structure:

• there is no rent paid out to the owner personally, so no property income to tax
• the company pays the mortgage interest and capital out of its trading profit
• lenders assess the loan on the company's trading performance, usually measured as EBITDA cover over the interest and capital payments, rather than on rent

Moving an existing building from personal ownership into a company is not a paperwork exercise. It is a sale, and it can trigger capital gains tax and Stamp Duty Land Tax, depending on the facts. The Budget does not change the SDLT rates that apply to commercial or mixed-use property. For many owners the realistic option is not to transfer the current building but to have the company buy the next one, or buy the freehold of a building it already leases from a third party.

Business owners thinking about an eventual sale should also note that the lifetime limit for Business Asset Disposal Relief falls from £1 million to £500,000 for disposals from 6 April 2027 (Budget 2026, para 6.261). That relief applies to qualifying business disposals, and whether premises are inside or outside the company affects how a sale is structured. This is exactly the kind of decision to take with an accountant before acting, not after.

Reporting and admin changes landlords should know about

The Budget also signals more scrutiny of rental income:

• The government "will consult on expanding third-party reporting requirements for property income data" (Budget 2026, para 6.157).
• Landlords joining Making Tax Digital for income tax in April 2027 will not receive late-submission penalty points for their first four quarterly updates in 2027-28 (Budget 2026, para 6.152).
• From April 2029, payments on account under self assessment move to "more regular in-year payments" (Budget 2026, para 6.147), which will change the timing of a landlord's tax cash flow.
• The document refers to "a landlord registration fee for the Private Rented Sector" without giving an amount or a date (Budget 2026, Table 6.1 footnote 2). Until the detail is published, it is not possible to say what it will cost.

What to do now

1. Work out your exposure. Take last year's taxable rental profit and recalculate it at 24%, 44% or 49% as applicable. The difference compounds over a long hold.
2. Separate the building from the business. If you own premises personally and rent them to your company, list the rent, the mortgage, if any, and your marginal rate. This is the case where structure makes the biggest difference.
3. Check your ground-floor tenant's rates position. If the unit is retail, hospitality or leisure, ask whether the new thresholds will bring it into full or tapered relief from April 2027. A tenant paying less in rates is a stronger tenant.
4. Talk to your accountant before 6 April 2027. Any restructuring, transfer or sale needs proper tax advice. None of it should be rushed to beat a date without numbers in front of you.
5. If the company will buy, prepare the trading story. An owner-occupier lender wants two to three years of filed accounts, current management figures, and a clear view of how the business covers the repayments. Having that ready shortens the process considerably.

Key dates

• 28 October 2026: Budget 2026 published
• 1 April 2027: wider Small Business Rates Relief for retail, hospitality and leisure properties in England
• 6 April 2027: property income rates of 24%, 44% and 49% begin; BADR lifetime limit falls to £500,000
• April 2027: new Making Tax Digital joiners get a penalty-point easement for their first four quarterly updates
• April 2029: self assessment payments on account move to more regular in-year payments

Brought to you by Business Mortgages Broker

Business Mortgages Broker arranges owner-occupier business mortgages for UK trading companies that want to buy, own or refinance the premises they trade from. Founder Matt Lenzie has 25 years in financial services, raising debt and equity, and has arranged around £400m of property finance. If your company is weighing up buying its own building in the capital, start with business mortgages in London from Business Mortgages Broker.

Source: HM Treasury, Budget 2026 (HC 726), 28 October 2026.

This article is general information only and is not tax or financial advice.