From 6 April 2027, rental profits stop being taxed alongside wages and pensions and get their own rates: 22% (property basic rate), 42% (property higher rate) and 47% (property additional rate). That is 2 percentage points more in every band. Relief for mortgage interest rises to 22% to match, which softens the blow slightly. The change is already law in Finance Act 2026, so the 2026/27 tax year is your last chance to plan under the old rates.
What changes, and where
| Rental profit taxed at | 2026/27 | 2027/28 |
|---|---|---|
| Basic rate band | 20% | 22% |
| Higher rate band | 40% | 42% |
| Additional rate band | 45% | 47% |
| Mortgage interest tax credit | 20% | 22% |
The personal allowance (£12,570) and the bands themselves (£37,700 of basic rate band, additional rate from £125,140) do not change.
These rates apply to taxpayers in England and Northern Ireland. Since 16 September 2026, the law has let the Senedd and the Scottish Parliament set their own property rates from 2027/28. Welsh taxpayers' property rates will be the UK property rates less 10 percentage points, plus a Welsh property rate chosen by the Senedd, so they could end up higher or lower than 22%, 42% and 47%. Scottish taxpayers' rental profits will be taxed at whatever property rates the Scottish Parliament sets, or at the normal Scottish rates if it sets none. Both decisions are expected in the devolved budgets for 2027/28.
Rental profit is now taxed after your other income
There is a second, less obvious change. From 2027/28, income tax is worked out in a fixed order: earnings, pensions and trading income first, then property income, then savings, then dividends. Your personal allowance and other reliefs must be used against the first category before they can reach rental profit.
In practice, this means rental profit sits on top of your salary or pension. If your other income already uses up the basic rate band, every pound of rental profit is taxed at 42% or more.
Worked example: a higher-rate landlord
Priya earns a salary of £60,000 and lets a flat in England. Her rental profit is £30,000 before mortgage interest, and she pays £10,000 of interest a year. Since 2020, interest is not deducted from rental profit; it gives a tax credit at the basic rate instead. Her total income is £90,000, so she keeps her full personal allowance.
Her taxable salary is £47,430 (£60,000 less £12,570), which uses all of the £37,700 basic rate band. All £30,000 of rental profit therefore falls in the higher rate band in both years.
| Tax on the flat | 2026/27 | 2027/28 |
|---|---|---|
| £30,000 rental profit | × 40% = £12,000 | × 42% = £12,600 |
| Less: £10,000 interest credit | × 20% = (£2,000) | × 22% = (£2,200) |
| Tax on rental income | £10,000 | £10,400 |
The tax on her salary is £11,432 in both years (£37,700 × 20% plus £9,730 × 40%), so her total bill rises from £21,432 to £21,832, an extra £400 a year. For an additional-rate landlord with the same figures, the increase would also be £400; for one whose rental profit sits wholly in the basic rate band, it would be £600 less £200, so again £400. The more profit and the less interest, the bigger the rise.
You can run your own figures with our property tax calculators.
Who is affected, and who is not
- Affected: individual landlords, joint owners and individual members of property partnerships, including landlords living abroad who let UK property. Most trusts and estates with rental income also pay the new rates.
- Not affected: property held in a limited company. Companies pay corporation tax on rental profits (19% to 25% for 2026/27) and can still deduct mortgage interest in full. Extracting the profit as dividends is taxed separately.
- Unchanged: the £1,000 property allowance, Rent a Room relief and the rules for carrying forward property losses.
Planning points for 2026/27
Timing of repairs and expenses. An allowable expense paid in 2027/28 saves tax at 22% or 42%, not 20% or 40%. Where work is genuinely discretionary, there may be a small gain in waiting. Never put off repairs that keep a property safe or lettable for a 2% saving, and remember that improvements are capital, not revenue.
Ownership between spouses. Married couples and civil partners who own property jointly are taxed 50:50 by default. If you hold it as tenants in common in unequal shares, you can be taxed on your real shares by sending HMRC Form 17 with evidence, such as a declaration of trust, within 60 days of signing. It only works if the beneficial ownership genuinely changes, and joint tenants must first sever the joint tenancy. Moving income to a basic-rate spouse saves 20 percentage points either way, but check the mortgage and any stamp duty first.
Pension contributions. Personal contributions extend your basic rate band and can bring income back below the £100,000 point where the personal allowance starts to go. Note that mortgage interest does not reduce the income used for that test. Relief is limited to your earnings (or £3,600 gross), and rental profit does not count as earnings.
Incorporation. The 2027 rise, on top of the interest restriction, will make some landlords look again at a company. Moving existing properties in usually triggers capital gains tax and stamp duty at market value, normally including the 5% surcharge on additional dwellings. Incorporation relief can defer the gain only where the letting is a genuine business, and from 6 April 2026 it has to be claimed. A genuine, long-standing property partnership can sometimes reduce stamp duty on incorporation, but a partnership set up shortly before incorporating is likely to be challenged, and HMRC has warned landlords about marketed hybrid partnership structures in Spotlights 63 and 63a. See our guide to incorporating a property portfolio and our property incorporation page before acting.
Making Tax Digital from April 2027
Separately, landlords and sole traders whose combined gross income from property and self-employment was over £30,000 in 2025/26 must use Making Tax Digital for Income Tax from 6 April 2027: digital records and quarterly updates. The threshold is gross rents, not profit, and falls to £20,000 from April 2028. Our guide to Making Tax Digital for Income Tax explains the steps.
What to do now
- Estimate your 2027/28 bill using your latest rental accounts and the calculators above.
- Check how joint properties are owned, and whether a Form 17 split reflects reality.
- Plan discretionary repairs and pension contributions around the 6 April 2027 date.
- If you are considering incorporation, model the capital gains tax, stamp duty and refinancing costs before anything is transferred.
- Check whether Making Tax Digital applies to you from April 2027 and choose software.
- Watch the Autumn Budget on 28 October 2026. The rates for 2027/28 are already set for England and Northern Ireland (Scottish and Welsh property rates are still to be decided), but the Chancellor could announce further changes.
Find out more about our property tax work and how we help landlords. If you would like your own figures reviewed by a Chartered Tax Advisor, book a consultation.
This article is general information about UK tax, based on the law and HMRC practice at the date shown above. It is not advice, and reading it does not make you our client. Tax rules change and their effect depends on your circumstances, so please speak to us before acting on it.