From 6 April 2027 rental profit stops being taxed like other income. The Finance Act 2026 creates a separate set of property income rates and sets them two percentage points above the ordinary bands. This is not Budget speculation and it is not a consultation. The Act received Royal Assent on 18 March 2026, the rates are written into section 7, and they take effect for the 2027 to 2028 tax year. Most landlords have not yet put the change into their numbers, which is the only reason it still feels distant.
What the 2027 landlord rates are
Section 7 sets the property basic rate at 22 per cent, the property higher rate at 42 per cent and the property additional rate at 47 per cent, for the 2027 to 2028 tax year. Section 6 is the machinery that creates those rates as a distinct category and applies them to property income, meaning profits of a UK or overseas property business along with certain related receipts.
The comparison that matters is against 20, 40 and 45 per cent, which is what the same profit is taxed at now. Every band goes up by exactly two points. The stated logic is that rental income carries no National Insurance while earned income does, so the surcharge is intended to close part of that gap rather than to target landlords for its own sake. Whether that reasoning persuades you is beside the point. The rates are law.
What two points actually costs
Two percentage points sounds survivable, and on a small profit it is. The problem is that it applies to profit, not turnover, and rental profit is already a thin number after mortgage interest, letting fees, insurance, repairs and voids.
Take a landlord with £12,000 of taxable rental profit who is a higher rate taxpayer. At 40 per cent the tax is £4,800 and the net is £7,200. At 42 per cent the tax is £5,040 and the net is £6,960. The extra £240 is 3.3 per cent of what they used to keep. Scale that to a portfolio running £60,000 of taxable profit and the additional tax is £1,200 a year, every year, with no corresponding rise in rent.
The figures move against you as profit rises, because the surcharge follows the band. An additional rate taxpayer goes from keeping 55 pence in the pound to keeping 53, which is a 3.6 per cent cut in retained income. None of this changes whether a property works. It does change the yield you need to hit the same net.
Who the 2027 rates do not catch
Two groups are not caught, and both matter for how you hold property.
Scottish taxpayers are excluded. Section 6 makes the new property rates subject to the existing Scottish rates provisions, so property income for a Scottish taxpayer continues to be taxed under Scotland’s own income tax rates rather than at 22, 42 and 47. Wales is not currently different, whatever you may read elsewhere. Section 8 and Schedule 2 give the Senedd a power to set its own Welsh property rates, in the same way it already varies other Welsh income tax rates, but that power is not yet in force. It takes effect only once the Treasury appoints a start date by regulations, for a tax year after 2026 to 2027, and even then the Welsh rate defaults to matching the UK figure unless the Senedd sets a different one. It has never done so under the equivalent existing power. Until that changes, Welsh taxpayers pay the same 22, 42 and 47 per cent as taxpayers in England and Northern Ireland. Scotland is the only jurisdiction currently outside the new rates.
Companies are also outside it. The new rates are income tax rates for individuals, and a property held in a limited company pays corporation tax on its profit instead. That is the fact that will drive most of the conversation about this change over the next year.
The limited company question
It is the obvious conclusion and it is only sometimes the right one. Incorporating is not a tax switch you flip. Moving property from personal name to a company is a disposal, so it can trigger capital gains tax on the gain to date and stamp duty on the transfer, and company buy to let mortgages generally price above personal ones. Those are real costs paid now against a saving earned slowly.
The arithmetic turns on the size of the profit and how long you intend to hold. Two points on £12,000 of profit is £240 a year, which will not repay a five figure incorporation cost in any sensible timeframe. Two points on £60,000 across a portfolio you plan to hold for twenty years is a different calculation entirely. We covered the underlying structure in our guide to Section 24 and why landlords buy through companies, and the 2027 rates strengthen that case without changing its shape.
The one thing worth saying plainly is that this is a question for an accountant with your actual numbers, not a rule of thumb from a blog. Anyone telling you incorporation is always the answer is selling incorporation.
What this means for property investors
Price it now, because it is knowable. A property bought in 2026 on a personally held basis will be taxed at the new rates for the whole of its life from April 2027 onward, so any model running to 20 or 40 per cent on rental profit is already out of date. Rebuild the net figure at 22 or 42 and see whether the deal still clears your target.
The second effect is on which deals survive. Thin margin stock, where the profit after interest is small, loses proportionately the same two points as everything else, but it has the least room to absorb it. Higher yielding assets and lower geared positions take it more comfortably. That is a quiet argument for buying on income rather than on hoped for growth, which is the same conclusion we reached when weighing whether buy to let is still worth it.
Every property we take on is modelled on net income after costs rather than on a headline yield. You can see what is currently available on our investment property listings, or join the insider list for deals before they are published.