From 6 April 2027, individual landlords in England, Wales and Northern Ireland pay income tax on rental profits at new property rates of 22%, 42% and 47%, two percentage points above the rates on earnings. The tax reduction for mortgage interest rises from 20% to 22% at the same time, so for most landlords the extra tax works out at 2% of rental profit after finance costs (HMRC technical note; the 2% figure is our arithmetic, shown below).
The measure was announced at the Autumn Budget on 26 November 2025 and is now law in Finance Act 2026. Scotland, and potentially Wales, will set their own property rates. This guide to landlord tax from April 2027 sets out the rules, the order in which income is now taxed, three worked examples and the questions to ask before incorporating, as at 9 October 2026.
What was announced, and what is now law
The Budget document said: “From April 2027, the property basic rate will be 22%, the property higher rate will be 42%”, with a property additional rate of 47%, and that the changes “will apply in England, Wales and Northern Ireland” (HM Treasury). The same Budget raised savings income tax by two points from April 2027 across the UK, and the dividend ordinary and upper rates by two points from April 2026.
HMRC’s technical note filled in the detail. Relief for residential finance costs will be given at the property basic rate of 22%. The property allowance and rent-a-room scheme are unchanged, and carried-forward property losses still go against property income. The withholding rate on property income distributions from REITs and property funds, and under the non-resident landlord scheme, moves to 22% (HMRC).
Finance Act 2026 received Royal Assent on 18 March 2026. Section 6 creates the property rates and the new ordering rules, with effect “for the tax year 2027 to 2028 and subsequent tax years”, and section 7 sets them at 22%, 42% and 47% for 2027 to 2028. Section 8 provides for Scottish and Welsh property rates set by the Scottish Parliament and the Senedd, and was brought into force on 16 September 2026 for 2027 to 2028 onwards by SI 2026/1023.
Landlord tax rates, before and after
| Income or relief | 2026 to 2027 | From 6 April 2027 | Where |
|---|---|---|---|
| Property income (rental profit) | 20%, 40%, 45% | 22%, 42%, 47% | England, Wales, Northern Ireland |
| Earnings and pensions | 20%, 40%, 45% | Not changed by these measures | England, Wales, Northern Ireland |
| Savings income | 20%, 40%, 45% | 22%, 42%, 47% | Whole UK |
| Dividends | 10.75%, 35.75%, 39.35% | Not changed by the April 2027 measures | Whole UK |
| Finance cost tax reduction | 20% | 22% | England, Wales, Northern Ireland |
| Tax deducted from REIT property income distributions | 20% | 22% | Whole UK |
Sources: gov.uk income tax rates, gov.uk dividend tax, HMRC finance cost guidance and the HMRC technical note. HMRC’s 2027 to 2028 working uses a personal allowance of £12,570, a basic rate band of £37,700 and a higher rate band of £87,440.
Who it applies to
The change affects “individuals who receive income from letting property” (HMRC policy paper). HMRC counted 2.88 million unincorporated landlords declaring rental income in 2024 to 2025 (HMRC). Companies are outside it: they pay corporation tax on profits, at 25% or 19% for profits of £50,000 or less, with marginal relief between £50,000 and £250,000 (gov.uk).
Scotland and Wales
Scotland is already different. Scottish rates apply to wages, pensions and most other taxable income, including rental profit, while savings and dividends are taxed at UK rates. For 2026 to 2027 the Scottish bands run from a 19% starter rate to a 48% top rate (gov.uk). Under section 8, the Scottish Parliament will set Scottish property rates from 2027 to 2028.
Welsh taxpayers pay Welsh rates set by the Welsh Government, currently 20%, 40% and 45% (gov.uk). HMRC’s technical note lists Wales among the nations where the 22%, 42% and 47% property rates apply, but section 8 also gives the Senedd power to set Welsh property rates from 2027 to 2028. The Welsh draft Budget is due on 17 November 2026, a tax commentator reports (Ross Martin Tax Consultancy, 30 September 2026). When we checked on 9 October 2026, gov.uk’s Scottish and Welsh income tax pages did not yet show property rates for 2027 to 2028.
One known wrinkle: the Association of Taxation Technicians (ATT) has pointed out that finance cost relief is based on the UK basic rate even where devolved rates and bands differ, which “has led to anomalies” (ATT, 8 January 2026).
The new order of taxation
From 2027 to 2028, income is stacked in this order (HMRC; Finance Act 2026, section 6):
- Income that is not property, savings or dividend income, such as salary, pensions and trading profit.
- Property income.
- Savings income.
- Dividend income.
The personal allowance and other general reliefs are set first against the income in step one. Any excess then goes against property, savings or dividend income in whichever order is most beneficial to you (HMRC). For a landlord with a salary, rental profit sits on top of earnings, so it is the first part of income to cross into a higher band.
Worked examples
These are hypothetical landlords in England with round numbers, to show the arithmetic. “Rental profit” means rent less allowable costs, before mortgage interest, because finance costs are not deducted from rental income (HMRC).
Example 1: a basic-rate landlord
Salary £30,000, rental profit £10,000, mortgage interest £4,000.
| Step | 2026 to 2027 | 2027 to 2028 |
|---|---|---|
| Salary less £12,570 personal allowance: £17,430 at 20% | £3,486 | £3,486 |
| Rental profit of £10,000, all within the basic rate band | £2,000 (20%) | £2,200 (22%) |
| Finance cost reduction on £4,000 | minus £800 (20%) | minus £880 (22%) |
| Total income tax | £4,686 | £4,806 |
The bill rises by £120, which is 2% of the £6,000 left after interest.
Example 2: a higher-rate landlord
Salary £60,000, rental profit £20,000, mortgage interest £8,000.
| Step | 2026 to 2027 | 2027 to 2028 |
|---|---|---|
| Salary less personal allowance: £37,700 at 20% (£7,540) plus £9,730 at 40% (£3,892) | £11,432 | £11,432 |
| Rental profit of £20,000, all in the higher rate band | £8,000 (40%) | £8,400 (42%) |
| Finance cost reduction on £8,000 | minus £1,600 (20%) | minus £1,760 (22%) |
| Total income tax | £17,832 | £18,072 |
The bill rises by £240, 2% of the £12,000 left after interest. Measured against that £12,000 of cash profit, tax on the rental business takes £6,400 (53.3%) now and £6,640 (55.3%) from 2027 to 2028.
Example 3: a landlord with a small pension
Pension £10,000, rental profit £15,000, no mortgage. In 2026 to 2027, total income of £25,000 less the £12,570 allowance leaves £12,430 taxed at 20%: £2,486. From 2027 to 2028, the allowance goes first against the pension, using £10,000, and the remaining £2,570 against rental profit. That leaves £12,430 of property income at 22%: £2,734.60, an increase of £248.60.
How it interacts with section 24
The finance cost restriction, which landlords call section 24, was phased in from 6 April 2017 and fully applied from 6 April 2020. The reduction is the basic rate on the lowest of finance costs, property profits and adjusted total income; unused amounts carry forward, and the reduction cannot create a refund (HMRC). From 2027 to 2028 the rate becomes 22% (HMRC).
Because the property rate and the relief rate both rise by two points, the extra tax equals 2% of profit after finance costs in the first two examples above. In example 3 it is 2% of the rental profit left after the personal allowance. It is larger where relief is capped, for example when finance costs exceed rental profit, and the gap between a higher-rate landlord’s 42% charge and 22% relief stays at 20 points.
Thresholds matter too. Rental profit counts towards income before interest, and the personal allowance falls by £1 for every £2 of adjusted net income above £100,000, reaching zero at £125,140 (gov.uk).
Incorporation: questions to put to an adviser
Some landlords will ask whether a company is now cheaper. The answer depends on facts this article cannot see. What we can report: companies pay corporation tax at 19% to 25% (gov.uk), must pay the higher rates of stamp duty land tax on residential property they buy (HMRC), and profits taken as dividends are taxed at 10.75%, 35.75% or 39.35% above a £500 allowance (gov.uk). Questions to take to a regulated adviser or chartered tax adviser:
- What capital gains tax and stamp duty would moving existing properties into a company trigger, and does any relief apply to my circumstances?
- Can the mortgages be refinanced in a company, at what rate, and are there early repayment charges?
- How would finance costs be treated in a company compared with the 22% tax reduction?
- What is the combined rate after corporation tax and dividend tax if I take the profits out, rather than leaving them in?
- What are the extra running costs, from accounts to filings?
- How would it affect inheritance planning, and my partner’s position?
Also on the calendar: Making Tax Digital
Landlords also face quarterly digital reporting. Making Tax Digital for Income Tax applies from 6 April 2026 where qualifying income, which includes property income, was more than £50,000 in 2024 to 2025; from 6 April 2027 above £30,000 (based on 2025 to 2026); and from 6 April 2028 above £20,000 (based on 2026 to 2027) (gov.uk).
For the wider picture, including yields and stamp duty, see our UK property investment guide. REIT investors are covered in REITs explained, savers facing the same two-point rise on interest in our report on the April 2027 cash ISA changes, and the wider wrapper order in tax-efficient investing.
