UK Property After Budget 2026: Rental Tax and the High-Value Homes Surcharge
Higher announced tax rates on rental profits, an annual surcharge on high-value homes in England, and changes to penalties for late property returns.
The main announcements for property owners concern rental income tax, the High Value Council Tax Surcharge and late capital gains tax returns. How each affects you depends on how the property is owned and on your own circumstances.
Rental income tax from April 2027
The government has announced the following rates of income tax on property income from 6 April 2027, with legislation in the Finance Bill 2026-27.
| Rate band | 2026-27 | Announced for 2027-28 |
|---|---|---|
| Basic | 20% | 24% |
| Higher | 40% | 44% |
| Additional | 45% | 49% |
These rates apply in England, Wales and Northern Ireland, and the Scottish and Welsh governments have been given powers to set their own property rates. Which rates apply depends on the taxpayer's status, not on where the property is. A non-UK resident is not a Scottish taxpayer, for example, even if the property is in Scotland.
Property income is taxed after earnings and pensions but before savings and dividends, and the Personal Allowance is set against other income first.
Worked example
Suppose a landlord has £20,000 of taxable rental profit, all of it falling within the higher rate band. Before any finance cost tax reduction, the tax on that profit rises from £8,000 to £8,800, an increase of £800 a year. The example holds the landlord's other income and circumstances constant.
Mortgage interest relief
Individual residential landlords do not deduct mortgage interest from rental profits. Instead they receive a tax reduction on their finance costs at the basic rate. From 2027-28 that reduction is given at the property basic rate, which on the announced rates means relief at 24%, subject to the existing limits on the amount that qualifies.
Landlords living overseas
Living abroad does not remove UK tax on UK rental income. Your calculation should take account of any Personal Allowance you are entitled to as a non-resident, which depends on your nationality or a double tax treaty, and of tax in the country where you live.
Under the Non-Resident Landlord Scheme, a letting agent, or in some cases the tenant, must deduct tax from the rent unless HMRC has approved payment without deduction. From 2027-28 the deduction is made at the property basic rate. The tax deducted is credited against your liability for the year; it is not necessarily your final bill. Approval to receive rent gross does not make the income tax-free.
High Value Council Tax Surcharge from April 2028
The government has confirmed an annual surcharge on owners of residential property in England worth £2 million or more, starting in April 2028 and collected alongside council tax.
| Value band | Annual surcharge |
|---|---|
| £2 million to £2.5 million | £2,500 |
| £2.5 million to £3.5 million | £3,500 |
| £3.5 million to £5 million | £5,000 |
| Over £5 million | £7,500 |
The Valuation Office will identify properties within scope and allocate their bands, based on values around April 2026. Owners close to a band boundary should check the final statutory definitions.
Empty homes and deferral
A 100% premium will apply to homes left substantially unfurnished and unoccupied for 12 months or more. A deferral scheme will let owners delay payment, with interest, until the property changes hands, where the household meets one of three tests: income of £35,000 or less, capital of £16,000 or less, or a household member meeting disability criteria. Exemptions include care homes, registered social housing and working farmhouses.
Overseas owners should distinguish the empty homes premium from the separate premium for non-UK resident owners that was explored in the consultation. That proposal has not been confirmed. Our article on the High Value Council Tax Surcharge has more detail.
Late property returns: a limit on further penalties
Selling UK residential property can require a separate capital gains tax return, and payment of the tax, within 60 days of completion. For non-residents the reporting obligation is wider and can apply even where no tax is due. Companies are taxed under a separate corporation tax framework.
The Budget addresses cases where the disposal is reported late through a Self Assessment return instead of on the property return. Under the published draft legislation, the overdue property return obligation ends when the Self Assessment return including the disposal is delivered, which stops further late filing penalties from accruing. The change is intended to apply to Self Assessment returns delivered on or after 28 October 2026.
It does not extend the original deadline or remove penalties already incurred, and interest on tax paid late is a separate matter. If you have missed a property return, take advice on the right filing and payment steps rather than waiting for your annual return. Our guide to the 60-day CGT deadline explains the rules.
Making Tax Digital and paying tax during the year
Making Tax Digital: the exemption for non-residents
Making Tax Digital for Income Tax requires landlords and the self-employed to keep digital records and send quarterly updates to HMRC once their gross property and self-employment income exceeds £50,000 (from April 2026), £30,000 (from April 2027) and £20,000 (from April 2028). The test uses gross rents, before expenses, so a landlord with modest profits can still be brought in.
For 2026-27 there is a temporary exemption for people whose tax return includes the residence pages (SA109), which covers most non-UK residents. It is automatic if you included those pages in your 2024-25 return; otherwise you need to apply. The Budget announced that people expected to be non-UK resident will remain exempt from Making Tax Digital until further notice, rather than the exemption ending in April 2027, with secondary legislation to follow before then.
Some points are not yet clear:
- whether the continuing exemption covers everyone who completes the residence pages, for example those claiming split-year treatment or a Personal Allowance under a tax treaty, or only those expected to be non-resident;
- whether it will apply automatically or need a fresh application; and
- what happens in the year you return to the UK.
The exemption only covers the quarterly updates. You still need to file an annual Self Assessment return. If you are a non-resident landlord with UK rents above the threshold, check that you are covered for 2026-27, and if you plan to return to the UK, expect to come within Making Tax Digital once you are resident again. Our articles on HMRC automatically enrolling landlords into Making Tax Digital and the £30,000 threshold from April 2027 explain the rules in more detail.
Paying tax during the year from April 2029
HMRC also plans to change how Self Assessment tax is paid. From April 2029, the January and July payments on account are expected to be replaced by automated payments during the tax year. They will be collected, for example, by Direct Debit, or, if you have UK employment or private pension income taxed under PAYE through your tax code if you choose. How often payments are made, and how the move from the current system will work, are due to be confirmed in 2027.
Payments will continue to be based on the previous year's tax, and you will be able to update them online if your circumstances change. They are separate from the Making Tax Digital quarterly updates. 2029-30 will be a transition year, in which you make the final payment for the previous year while starting payments under the new system. Overseas landlords without UK salary or pension income will not be able to use the PAYE route, and paying by Direct Debit may need a UK bank account. More detail: Self Assessment payments from April 2029.
Other points for property owners
Residential purchase taxes
The residential rates of stamp duty land tax, which applies in England and Northern Ireland, are unchanged, as are the 5% surcharge on additional properties and the 2% surcharge for non-UK resident buyers. Where both surcharges apply, the top marginal rate is 19% on the portion of the price above £1.5 million. The Budget does include some technical SDLT changes, such as to group relief.
Company-held homes
Annual Tax on Enveloped Dwellings charges rise by 3.5% from 1 April 2027. Companies holding UK homes should review their position separately from individual landlords.
What to review
- Your projected rental tax and cash flow for 2027-28.
- Your finance cost relief and Non-Resident Landlord Scheme arrangements.
- Whether your property may fall within the high-value surcharge.
- Any outstanding property disposal returns.
- Whether you are within Making Tax Digital or covered by the non-resident exemption, and how you will pay tax during the year from 2029.
- Your ownership arrangements, before considering any transfer or restructuring.
This article reflects announcements and published material available on 29 October 2026. Some measures still require legislation or further guidance.
