From 6 April 2027, the new property Income Tax rates will be 22%, 42% and 47%. For individual landlords covered by the changes, the rate depends on which tax band their rental income falls into. Qualifying residential mortgage interest relief will also move from 20% to 22%, subject to the existing limits. These are the changes published by HMRC.
The increase is not simply 2% of the rent arriving in your bank account. You need to calculate taxable rental profit, take account of your other income and allowances, and then apply any available finance-cost tax reduction.
What are the landlord tax rates for 2027/28?
The 2027/28 tax year runs from 6 April 2027 to 5 April 2028. The following comparison covers the published property rates for England, Wales and Northern Ireland, not Scottish taxpayer calculations.
| Tax band | 2026/27 | 2027/28 |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
Each rate rises by two percentage points. That does not mean every landlord pays 22%, or that their overall tax bill rises by only 2%. The current rates and HMRC's property-rate measure need to be read alongside your full income position.
Who is affected by the new landlord tax rates?
This guide focuses on UK-resident individuals who own residential rental property personally, including jointly owned properties. Your share of the income, other earnings and available reliefs determine your own calculation.
HMRC describes the new rates as applying in England, Wales and Northern Ireland. Scottish taxpayers need a separate assessment: Scottish taxpayer status depends on the individual's circumstances, not simply where the rental property is located. Non-resident landlords also need to consider the separate UK reporting and withholding rules described in HMRC's technical note.
Limited companies do not pay these personal Income Tax rates on their rental profits. A property company pays Corporation Tax instead. There may then be further tax when an owner takes money out of the company. HMRC explains the distinction between personal and company property income.
How much extra tax will landlords pay?
The examples below hold income and costs unchanged so you can see the effect of the rate changes. They are illustrations, not client case studies. They assume UK residence, non-Scottish rates, no other income or reliefs beyond those described, and full use of any finance-cost reduction shown. National Insurance, student loans and benefit-related charges are excluded.
Example 1: £20,000 rental profit with no mortgage
A landlord has £20,000 of taxable rental profit after allowable expenses. Their Personal Allowance is already used against other income, but all £20,000 still fits within the basic-rate band. There is no mortgage interest.
| Calculation | 2026/27 | 2027/28 |
|---|---|---|
| Taxable rental profit | £20,000 | £20,000 |
| Rate on that profit | 20% | 22% |
| Income Tax on the rental profit | £4,000 | £4,400 |
The extra tax is £400 a year, or about £33.33 a month. This example assumes no unused Personal Allowance is available to reduce the rental income further.
Example 2: a higher-rate landlord with mortgage interest
A landlord earns £55,000 from employment and has £20,000 of rental profit before the finance-cost tax reduction. Qualifying mortgage interest is £10,000. The salary has already used the basic-rate band, so all the rental profit falls within the higher-rate band.
| Calculation | 2026/27 | 2027/28 |
|---|---|---|
| Taxable rental profit | £20,000 | £20,000 |
| Tax before finance-cost relief | £8,000 at 40% | £8,400 at 42% |
| Mortgage interest tax reduction | £2,000 at 20% | £2,200 at 22% |
| Tax attributable to the rental profit | £6,000 | £6,200 |
| Rental cash left after interest and tax | £4,000 | £3,800 |
The extra tax is £200, not £400. The higher interest relief offsets part of the rate increase. The rental cash figures start with £20,000 profit, subtract £10,000 interest and then the tax shown. Mortgage capital repayments, capital spending and timing differences are excluded.
Example 3: a portfolio landlord earning £55,000 from employment
A landlord receives £72,000 rent from three properties and incurs £27,000 in allowable running expenses. That leaves £45,000 rental profit before finance-cost relief. They also earn a £55,000 salary. For this illustration, assume £15,000 of qualifying mortgage interest and no other income, deductions or reliefs.
Salary and rental profit total £100,000, so the standard Personal Allowance is not tapered in this example. Using the £12,570 Personal Allowance and £37,700 basic-rate band, the salary tax is £9,432: £37,700 at 20%, plus £4,730 at 40%. All £45,000 rental profit falls within the higher-rate band.
| Calculation | 2026/27 | 2027/28 |
|---|---|---|
| Rental profit before finance-cost relief | £45,000 | £45,000 |
| Tax on the rental profit before relief | £18,000 at 40% | £18,900 at 42% |
| Finance-cost tax reduction | £3,000 at 20% | £3,300 at 22% |
| Tax attributable to the rental profit | £15,000 | £15,600 |
| Income Tax on employment income | £9,432 | £9,432 |
| Total annual Income Tax liability | £24,432 | £25,032 |
The annual Income Tax increase is £600. The total liability is not necessarily the amount still payable to HMRC: PAYE tax already deducted and any payments on account must be credited. Additional income could also take this landlord above £100,000 and start reducing their Personal Allowance.
How does mortgage interest tax relief change in April 2027?
For individual residential landlords subject to the finance-cost restriction, often called Section 24, qualifying mortgage interest is not deducted like an ordinary running expense when calculating taxable rental profit. It normally gives a tax reduction instead. From 2027/28, HMRC says that reduction will use the 22% property basic rate, rather than 20%.
The restriction itself is not being abolished. A higher-rate landlord does not automatically receive 42% relief on their interest, and mortgage capital repayments do not become deductible.
The finance-cost calculation is subject to limits. Broadly, the reduction is calculated using the lowest of:
- Qualifying finance costs, including eligible unused costs brought forward.
- Property business profits after any brought-forward property losses.
- Adjusted total income above the Personal Allowance, excluding savings and dividend income for this test.
The reduction cannot create a tax refund. Qualifying costs restricted by the profit or income limits can be carried forward under the rules. This is why the examples assume the interest relief is fully usable: the result can differ where profits or taxable income are low.
How do salary and the Personal Allowance affect rental income tax?
From April 2027, property income is taxed after employment, trading and other non-savings, non-dividend income, but before savings and dividends. There is no separate basic-rate band just for rent. A salary or pension can use the band before your rental income is considered.
The Personal Allowance and relevant general reliefs must first be used against income other than property, savings or dividends. Any remaining allowance can then be used against those sources in the most beneficial way. This change to the ordering rules is another reason to calculate all income together.
The standard Personal Allowance is £12,570. It reduces by £1 for every £2 of adjusted net income above £100,000. Because restricted residential mortgage interest is not deducted in calculating rental profit, taxable income can be much higher than the cash left after paying the lender. A landlord near that threshold needs more than a simple percentage calculation.
Are landlord expenses and property allowances changing?
The new rates do not remove the £1,000 Property Allowance or Rent a Room relief. Nor do they remove the need to distinguish allowable running costs from capital spending. HMRC's guidance on rental expenses covers items such as letting-agent fees, insurance and repairs. Capital improvements are not ordinary repairs.
The Property Allowance is not an extra deduction to add on top of actual expenses. You also cannot claim it alongside the residential finance-cost tax reducer. Compare the alternatives and check the Property Allowance eligibility rules before claiming. Carried-forward property losses must still be used against property income under the applicable rules.
Should landlords move rental properties into a limited company?
Not automatically. A company can be worth comparing for future purchases, but transferring an existing portfolio is a separate decision. Compare the tax on rental profits, mortgage terms, ongoing costs, how much money you need to withdraw and the likely outcome when a property is sold.
Transferring a property to your own company is a real disposal, not just changing the name on a tax return. The main checks include:
- Property transfer taxes. For property in England or Northern Ireland, SDLT on a transfer to a connected company can be based on market value even if little or no money changes hands. Wales and Scotland have separate land transaction taxes.
- Capital Gains Tax and reliefs. A transfer may create a gain. Incorporation Relief can defer qualifying gains, but the business-transfer conditions must be met. It is not an automatic exemption for every rental property transfer, or a relief from SDLT.
- Financing and ongoing costs. Consider lender consent, refinancing, legal fees, company accounts and tax when profits are withdrawn.
The connected-company market-value rule and Incorporation Relief conditions require separate checks. For business transfers on or after 6 April 2026, HMRC's current manual also confirms that an Incorporation Relief claim is required.
Our accounting and tax support for property investors includes reviewing ownership, finance costs and company-structure decisions. The useful comparison is the overall financial outcome, not just which headline tax rate looks lower.
What should landlords review before 6 April 2027?
Start with a forecast for each owner and a cash-flow forecast for the portfolio. A practical review should cover:
- Rental profit. Reconcile rent, agent statements, repairs, service charges, insurance and professional fees. Separate capital work from running costs.
- Borrowing and relief. Obtain annual mortgage-interest statements, separate interest from capital repayments, and identify unused finance costs or property losses brought forward.
- Other income and ownership. Include salary, pensions, self-employment and investment income. Check the legal ownership and applicable income-sharing rules rather than assuming rent can be allocated freely.
- Purchases, sales and refinancing. Compare the proposed transaction under the relevant ownership structure before committing to it.
- Tax reserves and reporting. Budget for the revised liability and any payments on account, and establish whether MTD already applies or will apply from April 2027.
When does Making Tax Digital apply to landlords?
Making Tax Digital for Income Tax is a separate change from the new tax rates. Some landlords should already be using it. HMRC's current timetable, subject to the eligibility and exemption rules, is:
| Start date | Qualifying income | Income tax year tested |
|---|---|---|
| 6 April 2026 | More than £50,000 | 2024/25 |
| 6 April 2027 | More than £30,000 | 2025/26 |
| 6 April 2028 | More than £20,000 | 2026/27 |
The MTD threshold uses qualifying income before expenses, not taxable profit. Broadly, add qualifying property income and sole-trader income. PAYE salary and pensions do not count towards this entry test. HMRC explains what qualifying income includes.
For example, £36,000 of qualifying gross rent in 2025/26 can bring a landlord into MTD from April 2027 even if allowable expenses reduce the rental profit below £30,000. If you were required to start in April 2026, do not wait until 2027.
MTD involves digital records, compatible software, quarterly updates and an annual tax return. Check your start date, any exemption and the records your software will need before the relevant year begins.
Frequently asked questions
Will every landlord pay 22% tax from April 2027?
No. The 22% rate applies only to property income falling within the basic-rate band. Higher-rate property income is taxed at 42% and additional-rate property income at 47%. Your allowances and other income affect which bands apply.
Is landlord tax charged on rent or profit?
Income Tax is generally calculated using taxable rental profit after allowable deductions, not simply gross rent. For individual residential landlords, restricted mortgage interest is handled through a separate tax reduction rather than deducted as an ordinary expense.
Is the £1,000 Property Allowance available for each property?
No. It is an annual allowance for the individual across their eligible property income, not £1,000 per property. Joint owners may each qualify against their own share, subject to the eligibility rules and restrictions on claiming expenses or finance-cost relief.
Does MTD mean landlords pay tax every quarter?
No. Quarterly updates are reporting requirements, not quarterly tax bills. MTD does not change how or when you pay Income Tax. The usual Self Assessment payment deadlines, including payments on account where required, still apply.
Discuss your rental income and ownership structure with Dali & Co
Dali & Co helps landlords and property investors with rental accounts, Self Assessment, Section 24 calculations, property bookkeeping, MTD preparation and limited-company property accounts. We can also compare ownership options before a purchase, sale or refinance.
Tell us how your properties are owned, what borrowing is in place and what you are planning next. We can then review the figures behind the decision, including the effect of the April 2027 changes.
Discuss your property portfolio with Dali & Co.
Sources and updates
Official guidance is linked beside the relevant explanations throughout this article. The main references are HMRC's property tax technical note, the residential finance-cost relief guidance, the MTD start-date guidance and the Incorporation Relief claim requirements.
Information checked against published guidance on 7 September 2026. This article provides general information, not advice on an individual transaction or tax return. Tax treatment depends on your circumstances, and future-year rules should be checked again before acting.