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 at 22, 42 and 47 per cent for the 2027 to 2028 tax year, two points above the ordinary rates in force today.
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. In Scotland, rental profit stays on the Scottish income tax rates unless the Scottish Parliament uses a new power to set separate property rates, as covered below.
In short
- From 6 April 2027, rental profit is taxed at new property rates of 22%, 42% and 47%, two points above today’s 20%, 40% and 45%.
- The Section 24 finance-cost reduction moves too, to 22% from the 2027 to 2028 tax year.
- On £12,000 of rental profit the extra tax is £240 a year; on £60,000 of rental profit it is £1,200 a year.
- A new personal allowance ordering rule can push the effective cost higher for landlords who also have a salary or pension.
- Scottish landlords use Scotland’s own income tax rates, and a company pays corporation tax instead, not these new rates.
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 in England and Northern Ireland, with Scottish taxpayers covered below.
| Band | Now | From April 2027 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
Every band goes up by exactly two points. The Section 24 tax reduction for mortgage interest and other finance costs moves too: Schedule 1 to the same Act gives it at the property basic rate, so from the 2027 to 2028 tax year it is worked out at 22 per cent rather than 20.
HMRC’s technical note on the change, published on 26 November 2025, gives the reasoning: income from property, savings and dividends pays no National Insurance while income from work does, and the higher rates are meant to help narrow that gap. The target is income from assets, not landlords as such.
What the two point landlord tax rise 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 higher rate taxpayer with £12,000 of taxable rental profit and no mortgage on the property.
| At 40% (today) | At 42% (2027 to 2028) | |
|---|---|---|
| Tax | £4,800 | £5,040 |
| Net | £7,200 | £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.
With a mortgage, the higher Section 24 reduction offsets part of the rise, so for most landlords the extra tax works out at two points on profit after interest rather than on the whole taxable figure.
A second change in the same Act widens the gap for landlords who also have a job or a pension. From the 2027 to 2028 tax year, section 25(3A) of the Income Tax Act 2007, inserted by section 6 of the Finance Act 2026, makes the Personal Allowance and other reliefs come off salary, pension and trading income first, before they reach property, savings or dividend income.
HMRC’s technical note sets out the same order. Take a taxpayer in England or Northern Ireland with a £20,000 salary, £15,000 of rental profit and no mortgage.
Today the tax on £22,430 of taxable income at 20 per cent is £4,486. In 2027 to 2028 the allowance is used against the salary first, so the whole £15,000 of rent is taxed at 22 per cent and the bill rises to £4,786.
Only £48.60 of the extra £300 comes from the higher rate on rent; the other £251.40 comes from the new ordering.
The example holds the ordinary rates at 20, 40 and 45 per cent, which Parliament has not yet set for 2027 to 2028, while the Personal Allowance and basic rate band are frozen at £12,570 and £37,700 until April 2031. A landlord with no other income sees no ordering effect, because the allowance has to go against the rent anyway.
The figures move against you as profit rises, because the surcharge follows the band.
Keeps today
55 pence in the pound
Keeps from 2027
53 pence in the pound
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.
Scotland and limited companies
The 22, 42 and 47 per cent rates apply to individual landlords in England and Northern Ireland. Scottish landlords, and anyone holding property through a company, work from a different set of numbers.
In Scotland, section 6 makes the new property rates subject to the Scottish rates, so a Scottish taxpayer’s rental profit is taxed at Scotland’s own income tax rates. For 2026 to 2027 those are the rates the Scottish Parliament agreed on 19 February 2026:
| Band | Rate |
|---|---|
| Starter | 19% |
| Basic | 20% |
| Intermediate | 21% |
| Higher, from £43,663 | 42% |
| Advanced | 45% |
| Top | 48% |
The higher rate starts well below the £50,270 used in the rest of the UK.
The Section 24 tax reduction is a separate matter: Schedule 1 gives it at the UK property basic rate of 22 per cent from 2027 to 2028, and the Act sets no Scottish rate for that relief, so on the legislation as enacted a Scottish landlord’s reduction is worked out at 22 per cent too.
Section 8 and Schedule 2 give the Scottish Parliament a choice: property rates that differ from its other income tax rates, using the same bands. Treasury regulations made on 14 September 2026 bring that power into force on 16 September 2026, first for the 2027 to 2028 tax year. Any separate Scottish property rates would be set by the Scottish Parliament.
Companies are also outside it. The new rates sit inside income tax, so they reach individuals and, through parallel provisions in the same Act, trusts, but a property held in a limited company pays corporation tax on its profit instead. That is likely to drive much of the conversation about this change over the next year.
Whether incorporating beats the 2027 rates
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. Our guide to buying property through a limited company covers the decision itself.
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 the 2027 to 2028 rates are already set. A property bought in 2026 on a personally held basis will be taxed at the new rates from April 2027, so any model that taxes its rental profit at 20 or 40 per cent from that date is already out of date.
Section 7 sets the rates for the 2027 to 2028 tax year, and like the ordinary income tax rates they are set by Parliament year by year, so a later Finance Act could change them. 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.
For how this change sits alongside the other pressures on landlords, see why landlords are selling up in 2026.
This is general information, not advice on your position, so take independent advice before acting.
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