Landlord Tax Changes from April 2027: What's Coming
Landlord tax changes from April 2027 include a 2% property income tax rate increase, new personal allowance rules, and a lower MTD threshold. Prepare now.
Key Actions
- Calculate how the 2% rate increase will affect your rental income tax bill
- Review whether your personal allowance allocation changes under the new rules
- Check if MTD applies to you from April 2027 with the lower £30,000 threshold
- Consider speaking to an accountant about your property ownership structure
- Increase your tax savings buffer to account for the higher rates
Landlord tax changes from April 2027 introduce higher income tax rates on rental profits for the first time. From 6 April 2027, income tax rates on property income will increase by 2 percentage points across all bands — basic rate rises from 20% to 22%, higher rate from 40% to 42%, and additional rate from 45% to 47%.
These changes were announced in the Autumn Budget 2025 and apply to landlords in England, Wales, and Northern Ireland. This guide explains what's changing, how it affects your tax bill, and what you can do to prepare during the 2026/27 tax year.
New Property Income Tax Rates from April 2027
The new property income tax rates from April 2027 are 22% (basic), 42% (higher), and 47% (additional) — each 2 percentage points above the current rates. This is the first time property income has had its own separate tax rates in the UK.
| Tax band | Current rate (2026/27) | New property rate (2027/28) | Increase |
|---|---|---|---|
| Basic rate (£12,571–£50,270) | 20% | 22% | +2% |
| Higher rate (£50,271–£125,140) | 40% | 42% | +2% |
| Additional rate (over £125,140) | 45% | 47% | +2% |
Important: These new rates apply only to property income. Employment income, self-employment profits, and pension income continue to be taxed at the existing rates. This means that for the first time, the tax rate on a pound of rental profit will be higher than on a pound of salary.
The government's stated rationale is that property income doesn't attract National Insurance contributions, so increasing the tax rate brings the total tax burden closer to what employees and self-employed people pay.
How the Personal Allowance Allocation Changes for Landlords
From April 2027, the personal allowance is applied to employment, trading, and pension income before rental income. This means landlords with other income sources may lose the benefit of the allowance on their property profits entirely.
Currently: Your £12,570 personal allowance (2026/27) is allocated across all your income sources proportionally.
From April 2027: The personal allowance will be applied to employment, trading, and pension income first. It will only reduce property, savings, and dividend income after being used against those other sources.
What This Means in Practice
If you have employment income above £12,570 alongside rental income, your personal allowance will be fully absorbed by your employment income. Your entire rental profit will then be taxed at the new property rates starting from the first pound.
Example: Sarah earns £35,000 from employment and £12,000 in rental profit. Currently, her personal allowance reduces her total taxable income. From April 2027, her personal allowance is applied to her £35,000 employment income first. Her full £12,000 rental profit is taxed at the new 22% property basic rate — a tax bill of £2,640 on the rental income alone, compared to £2,400 under the current 20% rate.
For landlords whose only income is from property, the personal allowance continues to apply to rental income as before — but the rates on income above the allowance are higher.
Impact on Mortgage Interest Relief (Section 24)
The interaction between the rate increase and Section 24 mortgage interest relief is significant.
Under Section 24, residential landlords receive a tax credit at the basic rate on their finance costs. The government has confirmed that from April 2027, the property basic rate will be 22%, which affects the tax credit calculation.
How this works:
- Your rental profit is taxed at the new property rates (22%, 42%, or 47%)
- Your finance cost tax credit is calculated at the property basic rate (22%)
- For basic-rate taxpayers, the credit broadly offsets the tax on interest costs
- For higher-rate taxpayers, the gap between the tax rate and the credit rate widens
Example: James has £20,000 rental profit and £8,000 in mortgage interest. Under the current system, he pays 40% tax on the profit (£8,000) and receives a 20% credit on the interest (£1,600), netting £6,400. From April 2027, he pays 42% on the profit (£8,400) and receives a 22% credit (£1,760), netting £6,640. The rate increase costs him an extra £240 per year.
Making Tax Digital: £30,000 Threshold from April 2027
Alongside the rate changes, the MTD for Income Tax threshold drops from £50,000 to £30,000 from April 2027.
| Phase | Start date | Qualifying income threshold |
|---|---|---|
| Phase 1 | 6 April 2026 | Over £50,000 |
| Phase 2 | 6 April 2027 | Over £30,000 |
| Phase 3 | 6 April 2028 (pending) | Over £20,000 |
Qualifying income is your total gross income from self-employment and property combined (before expenses). If you're a landlord with qualifying income between £30,000 and £50,000, HMRC requires MTD-compatible software and quarterly digital updates from April 2027.
If you haven't already, start digital record keeping now. Our guide on choosing MTD-compatible software covers the options.
How Much More Tax Will Landlords Pay?
Most landlords will pay between £300 and £950 more per year under the new rates, depending on total income and rental profit. Here are examples for different scenarios:
Basic-Rate Landlord
Rental profit: £15,000 (no other income above the personal allowance)
| 2026/27 | 2027/28 | Difference | |
|---|---|---|---|
| Tax rate | 20% | 22% | +2% |
| Tax on rental profit | £3,000 | £3,300 | +£300/year |
Higher-Rate Landlord
Rental profit: £25,000 (with employment income of £40,000)
| 2026/27 | 2027/28 | Difference | |
|---|---|---|---|
| Tax rate on rental profit | 40% | 42% | +2% |
| Tax on rental profit | £10,000 | £10,500 | +£500/year |
Portfolio Landlord
Rental profit: £60,000 (property income only)
| 2026/27 | 2027/28 | Difference | |
|---|---|---|---|
| Basic rate portion | £7,540 | £8,294 | +£754 |
| Higher rate portion | £3,892 | £4,087 | +£195 |
| Total tax | £11,432 | £12,381 | +£949/year |
These figures don't include any mortgage interest tax credit, which would reduce the amounts. The key point is that the 2% increase applies to every pound of rental profit within each band.
How Buy-to-Let Landlords Can Prepare During 2026/27
The 2026/27 tax year is your last full year under the current rates. Here's what to consider:
Review Your Expenses
Make sure you're claiming all allowable landlord expenses. Reducing your taxable profit by even a small amount has a bigger impact when rates are higher. Expenses that reduce your profit by £1,000 will save you £220 at the new basic rate instead of £200.
Adjust Your Tax Savings
If you set aside a percentage of rental income for tax, increase it by 2% from April 2027. If your payments on account are based on 2026/27 figures, your January 2029 balancing payment will be larger because the payments on account won't reflect the higher rates.
Consider Your Ownership Structure
Some landlords are exploring whether holding property through a limited company could be more tax-efficient under the new rates, since companies pay corporation tax (currently 25%) rather than the new property income tax rates. However, transferring property to a company can trigger Capital Gains Tax and Stamp Duty Land Tax, so it's worth discussing with a qualified accountant before making changes.
Prepare for MTD
If your qualifying income is between £30,000 and £50,000, set up MTD-compatible software before April 2027. Getting comfortable with quarterly reporting during the current tax year means you won't be dealing with new software and higher tax rates at the same time.
Frequently Asked Questions
Do these changes affect Scottish landlords?
The government has stated it will engage with Scotland and Wales to provide them with the ability to set their own property income rates. Until separate Scottish rates are confirmed, landlords in Scotland should plan on the basis that the 2% increase will apply.
Does the personal allowance itself change?
No. The personal allowance remains at £12,570 (frozen until at least 2028/29). What changes is the order in which it's applied — employment and pension income absorb the allowance first, before property income.
Will mortgage interest tax credit go up to 22%?
The property basic rate rises to 22% from April 2027. The finance cost tax credit under Section 24 is calculated at the basic rate, so it is expected to increase to 22% for the 2027/28 tax year. This partially offsets the higher tax rate for landlords with mortgage costs.
Is it worth incorporating my property business?
This depends on your circumstances. Companies pay corporation tax at 25% on profits, which is higher than the new 22% basic property rate but lower than the 42% higher rate. However, extracting profits from a company through dividends creates an additional tax charge. Incorporation also triggers CGT on property transfers and potential SDLT costs. For higher-rate taxpayers with significant rental income, it may be worth exploring — but the calculation is complex and individual to each landlord.
This guide is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently. Always verify current requirements on GOV.UK or consult a qualified accountant for your specific situation.