Rental income tax surcharge will not apply to limited company landlords

During her Autumn Budget statement, Rachel Reeves confirmed that private landlords would face a 2% tax increase on their rental income. 

While this was not what many had hoped for, the increase will not apply to limited companies, which pay corporation tax instead.

The aforementioned 2% income tax surcharge will only apply to landlords who hold investment properties in their own name. 

Tax bands

Landlords who own property through a limited company or SPV (Special Purpose Vehicle) will pay the corporation tax rate of 19% on their profits, which remained untouched by Rachel Reeves’ budget. 

For limited company landlords, this is how corporation tax breaks down:

• Small Profits Rate (profits under £50,000) – 19%
• Main Rate (profits over £250,000) – 25%

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate. You can calculate this on the government website.

This is what landlords operating under personal names will have to pay on their property income:

• Basic rate (taxable income of £12,571 to £50,270) – 22%
• Higher rate (taxable income of £50,271 to £125,140) – 42%
• Additional rate (taxable income of over £125,140) – 47%

It is anticipated that landlords will cover this cost by increasing the cost of rent by £20-£25. Tenants may find that upcoming annual rents increase because of this additional charge to landlords.

Of course, this is the opposite intent of the government, who have stated strong support for tenants, and yet seem to have overlooked this likely outcome.

Tax on dividends

There is one catch for limited company landlords related to their income tax on dividend income, which is paid to shareholders once they make a profit. 

The income tax rate on taxable dividends will increase by two percentage points from April 2026. 

Currently, the allowance for dividends earnings before they become taxable is £500. There is no information in the Budget to suggest this will change.

This is how it will work out for each band:

• Basic rate – 10.75%
• Higher rate – 35.75%
• Additional rate (this remains unchanged from 2025) – 39.35%

Impact on the private rental sector

Whilst this update may encourage private landlords to increase their rent in order to cover the tax increase, it may also provide landlords more incentive to incorporate, if they haven’t already.

Lettings agency Hamptons have reported a significant increase in landlords setting up buy to let limited companies, with 33,598 incorporated in the first half of 2025. 

Notably, they reported a sharp increase across May and June, after April saw an increase to stamp duty land tax. This indicates that boosting tax efficiency is a major motivating factor for landlords jumping onto this trend.

Of these landlords choosing the incorporation route, the Millennial generation (people born between 1981 and 1996) are leading the charge. They account for half of new shareholders in PRS limited companies across England and Wales, based on analysis of Companies House data. 

OBR assessment

Prior to the official announcement in the House of Commons, the OBR mistakenly leaked all the contents of the Budget in their Economic and fiscal outlook report for November 2025. 

Journalists were able to guess the URL of the page , prompting the OBR to investigate their own cyber security and data handling. The OBR’s chairman, Richard Hughes, quit from his position over the scandal. 

In their report, the OBR gave their brief assessment on how Rachel Reeves’ plans may affect the PRS: 

The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns. This successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply.

This warning echoes the predictions of many landlord groups. Although, as we have previously covered, there are conflicting and unverified reports about whether a mass ‘landlord exodus’ has actually been occurring.

Connells, the company that owns Hamptons and other agency brands, has claimed that rates of house purchases by landlords in England and Wales have remained unchanged since 2024, despite the stamp duty surcharge for second homes. 

Our chief executive’s comment on the Budget

Commercial Trust’s chief executive, Jorden Abbs, has commented on landlords’ resilience in a changing private rental sector (PRS):

Landlords have consistently stood up to every economic challenge thrown at them over these past few years. Regardless of what was in the Budget, I would not expect any less from them. 

Limited company buy to let landlords across the country may be relieved by this update to the Autumn Budget. We at Commercial Trust welcome the possibility of more landlords deciding to incorporate in the wake of this news. 

Many landlords are already diversifying their portfolios to maximise yields, investing in assets like HMOs, holiday lets, semi-commercial and full commercial premises. We have also helped a number of landlords redistribute equity in their portfolios, to place them in the strongest position possible.

Landlords investing in personal name have been put in a position where they will have to pass on this cost to maintain a profitable position.  Let’s not forget that a significant number of landlords own just one or two properties, where margins can be slimmer. 

No matter how they prefer to conduct their business, the Commercial Trust team is committed to helping all private landlords with their property investments.

If you would like help with your borrowing, or a free portfolio review, get in touch with our advising team today.