Rental profit gets its own, higher tax rates. Here's what changes, who it affects most, and what to look at before April.
Updated 1 October 2026
The short version
- From 6 April 2027, rental profit is taxed at 22%, 42% and 47%, two points higher than tax on wages.
- The tax credit for mortgage interest rises from 20% to 22%.
- Your personal allowance is set against wages, self-employment and pension income before rental profit.
- Making Tax Digital reaches landlords with income over £30,000 in the same month.
Property income gets its own rates
Until now, rental profit has been taxed at the same rates as a salary. From the 2027/28 tax year it becomes its own type of income with its own rates: 22% in the basic band, 42% in the higher band and 47% in the additional band. The bands themselves don't change. The rule applies in England and Northern Ireland, and the legislation is already in the Finance Act 2026.
For a basic-rate landlord, that's roughly £200 a year more for every £10,000 of profit. For a higher-rate landlord it's the same £200 per £10,000, but on top of a much larger bill.
Mortgage interest relief goes up a little
Under Section 24, landlords who own in their own name don't deduct mortgage interest. They get a tax credit worth the basic rate on it instead. That credit rises to 22% to match the new basic property rate, so leveraged landlords lose slightly less than the headline rates suggest. Higher-rate landlords still pay 42% on profit that partly went to the lender.
The personal allowance moves
The tax-free personal allowance will be used against your other income first. If you have a salary as well as rental income, that means more of your rental profit falls into the taxable bands. A landlord earning £20,000 from a job and £10,000 from property will pay 22% on all £10,000 of the rental profit.
Watch the £100,000 line
Rental profit counts towards your total income. Above £100,000 you lose £1 of personal allowance for every £2 of income, which creates an effective rate of around 60% on income in that zone, before the new property rates are added. Landlords with a good salary can cross this line without noticing.
Making Tax Digital arrives at the same time
Landlords and sole traders with qualifying income over £50,000 have used Making Tax Digital since April 2026. From 6 April 2027 the threshold drops to £30,000, and to £20,000 from April 2028. You'll need compatible software and quarterly updates to HMRC.
What to look at before April 2027
- Work out your new bill. The Section 24 calculator compares 2026/27 with 2027/28 for your own figures.
- Check who owns what. If a spouse or partner pays tax at a lower rate, changing the ownership split can reduce the total bill. It needs a proper declaration of trust and legal advice.
- Look at a company for new purchases. Companies deduct interest in full and pay corporation tax instead. Moving existing properties usually triggers capital gains tax and stamp duty, so compare the numbers first.
- Review your rent and costs. Rent reviews now follow the Section 13 process, and costs you can deduct are worth more at higher rates.
- Choose your Making Tax Digital software if your income is over £30,000.