Tax on Rental Income From April 2027: The New Property Rates Explained

From 6 April 2027 the income tax rates that apply to property income are due to rise by two percentage points, taking the basic rate on rental profits from 20% to 22%, the higher rate from 40% to 42% and the additional rate from 45% to 47%. Nothing changes for the 2026/27 tax year: rental profits earned now are still taxed at the normal 20%, 40% and 45% rates. In cash terms the change costs roughly 2% of your taxable rental profit each year once it starts.

This is a rate change, not a new tax. Your rental profit is worked out in exactly the same way — rents received, minus allowable expenses, with mortgage interest still handled separately as a basic-rate tax reducer.

Key points

• Property income rates are set to become 22% / 42% / 47% from 6 April 2027 (the 2027/28 tax year onwards).
• Rental profits in 2026/27 are still taxed at 20% / 40% / 45%, so the first tax return affected is the one for 2027/28, due by 31 January 2029.
• The extra cost is simple to estimate: about 2% of the rental profit that falls inside a taxed band.
• There is still no National Insurance on rental profits, and the Personal Allowance stays at £12,570.
• Landlords with finance costs are squeezed twice if the Section 24 tax reducer stays at 20% while the rate charged on profits rises to 22% or 42%.

What's changing from April 2027

UK income tax already splits income into types, each with its own set of rates: earnings and pensions (the main rates), savings interest, and dividends. Dividends were pushed up by two points from April 2026, which is why the 2026/27 dividend rates are 10.75%, 35.75% and 39.35%. The announced next step separates property income (and savings income) out with its own higher rates from April 2027.

Property income means the profit from letting UK or overseas property reported on the property pages of your Self Assessment return — residential lets, rooms let above the £7,500 Rent-a-Room limit, holiday lets and commercial lets. It does not mean capital gains: selling a rental property is still Capital Gains Tax, at 18% or 24% for residential property, with a £3,000 annual exempt amount.

What is not changing is just as important:

• The Personal Allowance stays frozen at £12,570, and still tapers away above £100,000.
• The basic rate band is still the first £37,700 of taxable income, and the higher rate runs to £125,140.
• The £1,000 property allowance and the £7,500 Rent-a-Room limit are unchanged.
• Rental profits remain outside National Insurance, unless your activity is genuinely a trade.

Scotland and Wales

Rental profit is non-savings, non-dividend income, which is the part of income tax that Scotland sets its own rates for — currently six bands running from 19% up to 48%. Welsh taxpayers pay the Welsh Rates of Income Tax, which currently match the rates for England and Northern Ireland. How the two-point property surcharge is applied to Scottish and Welsh taxpayers is the single most important detail for landlords outside England.

The new property income rates

The bands are measured on your total taxable income, not on the rent alone. A teacher on £40,000 with £12,000 of rental profit has already used most of the basic rate band with salary, so part of the rent is taxed at the higher property rate.

Worked examples

Example 1: employed landlord with one flat

Salary £40,000, rental profit £12,000 (no mortgage).

1. The Personal Allowance of £12,570 is used by the salary, leaving £27,430 of salary in the basic rate band.
2. Basic rate band left over: £37,700 − £27,430 = £10,270.
3. So £10,270 of rent is taxed at the basic property rate and £1,730 at the higher property rate.

The extra tax is £240 — exactly 2% of the £12,000 profit. That shortcut works whenever the whole profit sits inside taxed bands.

Example 2: portfolio landlord, profits all in the higher band

Rental profit £30,000, all taxed at the higher rate because of other income. Tax goes from £12,000 (40%) to £12,600 (42%) — £600 more a year, before any interest relief.

Example 3: profit inside the Personal Allowance

A landlord with no other income and £9,000 of rental profit pays nothing now and nothing in 2027/28, because the profit is covered by the £12,570 Personal Allowance. A rate rise only bites on profit that is actually taxed, which is why splitting ownership sensibly between spouses or civil partners matters more as rates climb.

How it interacts with Section 24

Since 2020/21, finance costs on residential lets — mortgage interest, arrangement fees, interest on loans to buy furnishings — are not deductible from rental profit. Instead you get a tax reducer worth 20% of the finance cost. That is the Section 24 restriction, and it is why mortgaged higher-rate landlords often pay tax on a profit figure larger than the cash they actually keep.

Take a landlord with a £60,000 salary, £24,000 of rent, £4,000 of running costs and £9,000 of mortgage interest. Taxable property profit is £24,000 − £4,000 = £20,000, all in the higher band.

If instead the tax reducer tracked the new basic property rate of 22%, it would be worth £1,980 and the bill would be £6,420 — a £180 difference on this one property.

Two knock-on effects are worth flagging. First, rental profit counts towards the £100,000 Personal Allowance taper and towards the High Income Child Benefit Charge, which applies between £60,000 and £80,000 of adjusted net income — a higher rate on the profit does not change those thresholds, but the combined marginal cost can be severe. Second, the tax reducer cannot create a repayment: it is capped at your property income tax liability, so unused relief is carried forward.

What to do now

There are four full tax return cycles between now and the first bill at the new rates, so the useful work is preparation rather than panic.

• Know your number. Work out your current rental profit and how much of it sits in each band. Two percent of that figure is your rough annual increase.
• Tidy up expenses. Every allowable cost you miss is now worth 22p or 42p in the pound rather than 20p or 40p. Repairs, letting agent fees, insurance, ground rent, replacement of domestic items and the flat-rate home office allowance (up to £26 a month) all count.
• Check ownership shares. Profit taxed at 0% inside an unused Personal Allowance is unaffected by the rise. Beneficial ownership between spouses and civil partners is normally a 50/50 default unless a declaration says otherwise.
• Get ready for Making Tax Digital. Quarterly digital reporting for Income Tax starts in April 2026 for landlords with gross property or self-employment income over £50,000, and from April 2027 for those over £30,000.
• Remember pension contributions and Gift Aid reduce adjusted net income, which can matter if you are near £100,000 or in the Child Benefit charge range.

What to do next

Run your current figures through the rental income tax calculator to see where your profit falls across the bands, then add 2% of the taxed slice to picture the 2027/28 position. If you want a wider sweep of the reliefs and allowances landlords miss, use the landlord tax check. For the underlying rules on allowable expenses, the Section 24 restriction and how to report rents, read the full guide to tax on rental income for landlords. Returns themselves are filed through HMRC's Self Assessment service.