The 2p Rise in Property Income Tax: What Changes for Landlords from April 2027

The Autumn Budget 2025 announcement got filed under "unearned income" and largely passed landlords by at the time, but from 6 April 2027 it lands on every pound of rental profit you make. Income tax on UK property income is rising by 2 percentage points across the board — part of a wider package aimed at savings and dividend income too, since employment income and National Insurance were off the table. For a portfolio already dealing with the Section 24 finance cost restriction, that's a real increase on top of a tax base that may already be inflated.

The new rates, band by band

From 6 April 2027, the rates that apply to property income rise as follows:

• Basic rate: 20% → 22%
• Higher rate: 40% → 42%
• Additional rate: 45% → 47%

The rise applies to rental profit calculated the normal way — rents received less allowable expenses, whether you use the cash basis or accruals, and whatever mix of furnished and unfurnished lettings you run. It is not a new tax or a separate charge; it simply changes the rate applied to income you were already declaring on your Self Assessment return or, once Making Tax Digital for Income Tax catches you, through quarterly updates and a Final Declaration.

Why property income specifically

The government's manifesto pledge ruled out raising income tax or National Insurance on earnings, which left savings, dividend and property income as the places left to raise revenue without breaking that promise. All three are getting a 2 percentage point increase as part of the same package. For a working landlord who treats rental income as a second job in every practical sense, the distinction between "earned" and "unearned" income can feel arbitrary — but it's the distinction the rate rise is built on, and it's rental profit that falls on the wrong side of it.

The Section 24 gap doesn't get worse, just more expensive

Individual landlords with mortgages already know the mechanics of Section 24: finance costs are stripped out of the expense calculation and replaced with a flat-rate tax reducer, currently at 20%, applied after your tax bill is worked out. That inflates taxable profit for anyone with borrowing, and the further above the basic rate your income sits, the more of the gap between your marginal rate and that 20% credit you pay for.

The tax reducer is set to rise to 22% alongside the new basic property income rate, so the arithmetic of the gap itself doesn't widen — a higher-rate landlord still loses roughly 20 percentage points on every pound of finance cost (42% marginal rate against a 22% credit, much as it was 40% against 20%), and an additional-rate landlord still loses roughly 25. What changes is that your overall bill is now 2p higher across the board regardless of gearing, on top of whatever the Section 24 restriction was already costing you. It's an extra cost, not a sharper penalty on borrowing specifically.

Companies are untouched, again

This is an income tax change, so it only reaches individuals, partnerships and trusts receiving property income directly. A company holding the same portfolio, including an SPV, keeps paying corporation tax on its rental profits at the existing rates — nothing here touches that. The practical effect is to widen, again, the gap between holding property personally and holding it through a company, which is worth revisiting even if you looked at incorporation before and decided against it. Buying through a limited company still comes with its own costs, and getting profit out via dividends or salary is never free, but the comparison keeps moving in the same direction.

What this means in practice

Model your 2027–28 tax bill against the new rates now, particularly if you sit close to a band boundary where the extra 2p could push more income into the next threshold. If you run a geared portfolio, work out whether the finance cost credit uplift genuinely leaves you no worse off proportionally, or whether the flat 2p increase is simply additional cost on top — for most landlords it's the latter. And if incorporation was marginal last time you looked at it, run the numbers again: the gap between personal and company ownership has widened three times over in the space of a few years, and it isn't moving back.

Common questions

What is the new rate of income tax on rental income from April 2027?

From 6 April 2027, income tax on UK property income rises by 2 percentage points across every band: the basic rate goes from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%. It applies to rental profits calculated in the normal way, whether the property is furnished, unfurnished, or a mix.

Does the property income tax rise affect companies?

No. This is an income tax change affecting individuals, partnerships and trusts who receive property income directly. Companies, including SPVs, continue to pay corporation tax on rental profits at the existing corporation tax rates, so the change widens the gap between holding property personally and holding it through a company.

Does the Section 24 finance cost tax reducer rate change too?

Yes. The basic-rate tax reducer that individual landlords get on mortgage interest and other finance costs is set to rise from 20% to 22% alongside the new basic property income rate, so the gap between a landlord's marginal rate and the relief rate stays broadly the same as before, even though both figures are now higher.

Does this apply to landlords in Scotland and Wales?

Not automatically for Scotland. Property income counts as non-savings, non-dividend income, which is taxed at the Scottish rates and bands set by the Scottish Parliament for Scottish taxpayers, not the UK rates this change applies to. Wales has the same power to set its own rates but has mirrored the UK rates so far, so Welsh landlords are affected unless that changes.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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