Rental profits face higher tax rates than wages from 6 April 2027, when the UK government introduces a separate set of property income tax rates of 22%, 42% and 47%. Around 2.4 million landlords are expected to pay more tax as a result, according to HMRC’s own estimate.
The numbers that matter:
- Property basic rate: 22% (up from 20%)
- Property higher rate: 42% (up from 40%)
- Property additional rate: 47% (up from 45%)
- Estimated landlords affected by 2029-30: 2.4 million, or roughly 6% of all UK taxpayers.
- Forecast revenue from the property, savings and dividend changes combined: over £2.3 billion a year by 2030-31.
Why the rates are changing
Chancellor Rachel Reeves announced the new property income tax rates at the Autumn Budget on 26 November 2025. Parliament legislated the measure in the Finance Act 2026, which received Royal Assent on 18 March 2026.
The government’s stated reasoning is that landlords don’t pay National Insurance on rental income, while employees and self-employed workers do. Adding two percentage points to each band is intended to bring the effective tax burden on rental profits closer to the burden on earned income.
There’s a constitutional wrinkle too. Labour’s manifesto promised not to raise the basic, higher or additional rates of income tax. The new rates are technically separate from those existing bands — a point picked up in tax commentary on the day of the announcement.
What the new rates mean in cash
The 2% gap between standard income tax and the new property income tax rates applies across every band. Higher profits mean higher bills.
A basic-rate landlord with £10,000 of rental profit pays £200 more a year — £2,200 at 22% instead of £2,000 at 20%. A higher-rate landlord on £20,000 of profit pays an extra £400. An additional-rate landlord on £50,000 of profit pays an extra £1,000 — making this landlord tax increase 2027 a meaningful annual cost for those at the top of the property market.
Rachel McEleney, Tax Director at Deloitte, said on the day of the announcement: “These changes are expected to raise over £8 billion by 2030/31. These rate increases do not breach the letter of the government’s manifesto commitments, as they have created new rates of tax rather than increased existing ones. This creates complexity in the tax system, however, with ten different rates of tax potentially applying to individuals in England and Northern Ireland, and potentially more in Scotland and Wales.”
That last point matters. From April 2027 there could be ten separate income tax rates in play for an individual taxpayer in England or Northern Ireland. Standard rates, property rates, savings rates and dividend rates each carry their own basic, higher and additional bands.
The Personal Allowance change few are talking about
Tucked inside the same policy paper is a quieter change that may cost some landlords more than the headline rate rise. From April 2027, the £12,570 Personal Allowance must be set against employment, trading and pension income first, before any can be used against property, savings or dividend income.
Under current rules, a taxpayer can allocate their Personal Allowance in whichever way produces the lowest tax bill. From April 2027, that flexibility disappears for property income.
The bite comes when a landlord’s other income is taxed at a lower rate than their rental profit. Take a landlord with £15,000 of salary and £15,000 of rental profit.
Under the old “most beneficial” allocation, the Personal Allowance could come off the property income first — saving 22p in the pound. From April 2027, it has to come off the salary first — saving only 20p in the pound. That extra cost works out at around £250 a year on top of the headline rate rise.
Who is — and isn’t — affected
HMRC’s policy paper notes that “over 90% of UK taxpayers do not have taxable property income”. For the 2.4 million who do, the new rates add a few hundred pounds to most annual bills.
The new landlord tax rates 2027 apply to individual landlords in England, Wales and Northern Ireland. Scottish landlords aren’t directly affected, although the UK government has said it could extend that power to the Scottish and Welsh administrations if they wish to introduce their own rates.
Landlords operating through a limited company aren’t caught by the new rates either. Companies continue to pay corporation tax — 19% on profits up to £50,000 and 25% above £250,000 — with full mortgage interest deduction. Extracting profits as dividends, though, now attracts the higher 10.75% and 35.75% rates that took effect on 6 April 2026.
For highly geared landlords with large mortgages, there is a small offset. Finance cost relief on residential mortgage interest rises in line with the new property basic rate, from 20% to 22% from April 2027. A higher-rate landlord paying £10,000 a year in mortgage interest gains an extra £200 in tax credit, partly cushioning the rate rise.
How to prepare for the new property income tax rates
If you let property in your own name, the months between now and April 2027 are worth using carefully. There’s time to review your structure, your timing and your records — landlord tax planning 2027 starts now, not in April.
Steps to take now:
- Work out your projected rental profit for the 2027 to 2028 tax year and apply the new 22%, 42% or 47% rate to see your likely bill.
- Check whether timing matters for you — rent collected on the cash basis before 6 April 2027 is taxed at the current rates, while rent received on or after that date attracts the new ones.
- Consider whether incorporation, joint ownership with a spouse, or pension contributions might mitigate the impact, and take professional advice before acting.
- Make sure your record-keeping is ready for Making Tax Digital for Income Tax, which begins phasing in for landlords from April 2026.
Our Making Tax Digital guide for landlords walks through the new reporting requirements that sit alongside the rate changes.
What this means for your tax bill
For most landlords, the new property income tax rates add a few hundred pounds to the annual bill — manageable in isolation, but landing on top of more than a decade of tightening rules. Section 24 mortgage interest restrictions, the higher SDLT surcharge on additional properties, the abolition of the wear and tear allowance and the upcoming Making Tax Digital reporting rules have all stacked up against unincorporated landlords.
It’s worth checking whether you’re already paying more tax than you should be. Reliefs for repairs, replacement of domestic items, professional fees and travel costs are often under-claimed, and a careful review of past returns can sometimes uncover refunds going back four tax years. That’s where a specialist tax service can help.
Key Takeaways
- From 6 April 2027, rental profits are taxed at new separate property income tax rates of 22%, 42% and 47% — two percentage points above standard income tax.
- An estimated 2.4 million landlords in England, Wales and Northern Ireland are likely to pay more tax, according to HMRC’s projections.
- Your £12,570 Personal Allowance must be set against earned income first, which could push more of your rental profit into a taxable band.
- Limited company landlords aren’t caught by the new rates, but profits extracted as dividends face the higher 10.75% and 35.75% rates from April 2026.
- Finance cost relief on mortgage interest rises to 22%, partly offsetting the rate increase for landlords with large mortgages.
- If you let property in your own name, it’s worth reviewing your structure, timing and unclaimed reliefs well before April 2027.
Written by:
Tax Rebate Services Editorial Team
Reviewed by:
Tony Shanks
,
qualified Taxation Technician (ATT)
Last updated:
This article provides general information and is correct as at the date shown. It isn't personalised tax advice — for help with your own circumstances, speak to a qualified adviser or HMRC.
