The 2027 property income tax rise: what 22%, 42% and 47% mean for landlords

Tax · 5 min read · Published 1 October 2026 · Updated 2 October 2026

In short: from 6 April 2027, income from property will be taxed at its own rates: 22% for basic-rate taxpayers, 42% for higher-rate and 47% for additional-rate, two percentage points above today's rates. The relief for mortgage interest on residential lets rises from 20% to 22% to match the new basic rate. The change applies in England, Wales and Northern Ireland. For landlords who pay Scottish income tax, the Scottish Government has not yet said what rates it will set. Landlords who own through a limited company pay corporation tax instead and are not directly affected.

What was announced

The Autumn Budget in November 2025 created separate Income Tax rates for property income, alongside new rates for savings income from April 2027 and higher dividend rates from April 2026. Property income has until now been taxed at the same rates as earnings. From 2027 to 2028 it will carry a two-point premium at every band.

Two technical changes matter as much as the headline rates. First, the tax credit that replaced mortgage interest deduction for individual landlords, often called the section 24 restriction, will be calculated at the new property basic rate of 22% rather than 20%. Second, personal allowances and reliefs will be applied to other income, such as salary or pension, before property income. For many landlords that pushes more rental profit into a taxable band.

A worked example

Take a landlord who pays higher-rate tax on a salary, and whose rental income after running costs (but before mortgage interest) is £20,000, all falling in the higher band. Mortgage interest is £8,000. This is a simplified illustration that ignores other allowances.

The extra £240 a year looks modest, but on a property that clears £5,600 after interest and tax, it is a cut of about 4% in what you actually keep. Across a portfolio, and combined with higher borrowing costs, it adds up. A basic-rate landlord in the same position also pays £240 more, because the interest credit rises by the same two points.

The Scottish question

The UK Government plans to let the Scottish Parliament set its own property income rates from 2027 to 2028. The Scottish Budget on 13 January 2026 gave no indication of what it would do. Landlords who are Scottish taxpayers already pay Scotland's own income tax rates on rental profit, so the outcome could be the same two-point rise, something different, or no change.

Tax advisers have also pointed out an awkward mismatch: the mortgage interest credit is set at the UK property basic rate, which may not line up with whatever Scotland chooses. Until the Scottish Budget for 2027 to 2028, the honest answer is that nobody knows.

Note this depends on where the landlord lives for tax purposes, not where the property is. An overseas investor with a flat in Glasgow is not a Scottish taxpayer, and will normally be taxed on UK rental profit at the UK rates.

Does this make a limited company the answer?

Sometimes, and often not. A company pays corporation tax, currently between 19% and 25%, and can deduct mortgage interest in full. But taking money out of a company means dividend tax, and the dividend rates went up in April 2026. Moving existing property into a company is usually treated as a sale, which can trigger capital gains tax and stamp duty or its Scottish equivalent, plus refinancing costs.

For new purchases by higher-rate taxpayers who plan to reinvest rather than draw income, a company can make sense. For an existing portfolio, the switching costs often wipe out the saving. This is a decision for a tax adviser who can see your whole position.

What we would do before April 2027

• Rework each property's after-tax cashflow using the 2027 rates, not today's.
• Check whether a spouse or partner in a lower band should own a larger share, with proper advice on the legal and tax effects.
• Bring forward allowable repairs where they genuinely fall due, while rates are lower.
• Wait for the 28 October 2026 Budget before restructuring anything; it may change the picture again.

This guide is general information, not tax advice. We are not tax advisers. Rates, reliefs and the Scottish position may change; take advice from a qualified tax adviser before acting.

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