From April 2027, property income will be taxed at its own separate rates: 22% basic, 42% higher and 47% additional. That is two percentage points above the standard income tax rates that apply now. Finance cost relief — the mortgage interest credit — will be given at the new property basic rate of 22%.
The government’s stated reasoning is that income from assets should be taxed more comparably with employment income, which also attracts National Insurance. It notes that over 90% of UK taxpayers have no taxable property income. If you are reading this, you are in the other 10%.
This is not yet in force. It gives you roughly eighteen months to plan, which is more warning than landlords usually get.
What it actually costs
Two percentage points on your rental profit, not on your rent. The distinction matters, because tax is charged on profit after allowable expenses.
Take a Guildford property at the borough average of £1,728 a month — £20,736 a year. Suppose allowable expenses and management come to £6,000, leaving £14,736 of profit. A higher-rate taxpayer currently pays 40% on that, around £5,894. At 42% it becomes around £6,189. Roughly £295 a year on one property.
On a portfolio of five similar properties, that is closer to £1,500 a year. Not ruinous, but it compounds with everything else that has landed since 2020, and it is worth knowing about now rather than discovering it in a tax return.
The finance cost point is the one to watch
If you have a mortgage, the interest relief change matters more than the headline rate. Since the Section 24 restriction was phased in, landlords have not been able to deduct mortgage interest from rental income. Instead you get a basic-rate tax credit against your bill.
From April 2027 that credit is set at the property basic rate of 22% rather than 20%. So relief goes up slightly at the same time the rate goes up — which softens the change for mortgaged landlords relative to unmortgaged ones, but does not reverse it.
The landlords least affected are those with no borrowing. The landlords most affected are higher-rate taxpayers with modest borrowing, who get the full rate increase and only a small increase in relief.
What counts as an allowable expense
Because the tax is on profit, expenses are now worth marginally more than they were. The broad position is that costs incurred wholly and exclusively for the letting are deductible — letting agent fees, repairs and maintenance as distinct from improvements, landlord insurance, ground rent and service charges, safety certificates, accountancy for the property business, and the direct costs of advertising a tenancy.
Improvements are not deductible against income — they go against capital gains when you sell. The line between a repair and an improvement is where landlords most often get it wrong. Replacing a worn-out boiler with an equivalent one is generally a repair. Replacing it with a substantially better system and adding radiators tends towards improvement.
Some of the compliance spending that is now unavoidable falls squarely on the deductible side — gas safety records, EICRs, and EPCs among them.
What to consider before April 2027
Keep better records than you currently do. The simplest way to reduce a tax bill on profit is to stop failing to claim things you are entitled to. Most self-managing landlords under-claim, not because they are cautious but because the receipts are in three different places. One folder per property, kept as you go.
Think about the timing of work. If you have deductible repairs coming — and many landlords do, given the EPC C target for 2030 — the tax year in which you incur them will matter slightly more from 2027. Note carefully that most energy-efficiency work is capital improvement rather than repair, so this cuts both ways.
Get proper advice on ownership structure. Limited company ownership, transfers between spouses, and incorporation all come up when rates rise. All three have significant costs and consequences — stamp duty, capital gains, mortgage products, and the loss of some reliefs — and none of them is a decision to make from a blog post.
We are letting agents, not accountants. What we can tell you is what the change is and roughly what it costs. Anything about how you should hold property needs a qualified accountant who can see your whole position.
Where this sits alongside everything else
2026 and 2027 are a lot of change at once. The Renters’ Rights Act landed in May, the PRS Database opens from late 2026, a landlord Ombudsman follows around 2028, EPC C is targeted for 2030, and now tax rates rise in 2027.
Individually none of these is fatal. Together they are the reason some landlords are reassessing whether to stay in the market — and if selling is on your mind, the 16-month lead time on Ground 1A means that decision needs making well before you want the money.
Tax rates per HMRC guidance on changes to tax rates for property, savings and dividend income. This is general information, not tax advice — speak to a qualified accountant about your own position.
If you live abroad, there’s a separate regime on top of this — how the Non-resident Landlord Scheme works.
General information, not legal advice. Rent figures are borough-level ONS data; individual streets vary considerably. Property Lounge, Guildford.
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