From 6 April 2027 individuals pay income tax on property income at their own set of rates: 22% at the property basic rate, 42% at the property higher rate and 47% at the property additional rate. Property income becomes a separate layer in the calculation, taxed after wages, pensions and trading profits but before savings and dividends, and the Personal Allowance must be used against those other sources first.

What are the new property rates?

Section 6 of the Finance Act 2026 inserts new section 6D into the Income Tax Act 2007, creating a property basic rate, a property higher rate and a property additional rate, each set by Parliament for a tax year. Section 7 of the Finance Act 2026 sets them for 2027 to 2028:

Band (income after allowances) Main rate Property rate from 2027 to 2028
Basic rate band, up to £37,700 20% 22%
Higher rate band 40% 42%
Additional rate band 45% 47%

New section 11CA charges property income at the property basic, higher or additional rate where it would otherwise be charged at the basic, higher or additional rate. The bands themselves do not change: the basic rate limit of £37,700 and the Personal Allowance of £12,570 are frozen until 2030 to 2031 by section 10 of the Finance Act 2026. All of these amendments have effect for 2027 to 2028 and later years.

What counts as property income?

New section 17A of the Income Tax Act 2007 defines property income as income chargeable under these chapters of Part 3 of the Income Tax (Trading and Other Income) Act 2005:

  • Chapter 3: profits of a UK property business or an overseas property business;
  • Chapter 7: adjustment income under section 330;
  • Chapter 8: rent receivable in connection with a UK section 12(4) concern;
  • Chapter 9: rent receivable for UK electric line wayleaves;
  • Chapter 10: post cessation receipts from a UK property business.

HMRC’s technical note says the definition of property income is otherwise unchanged and gives property letting and property income distributions from investment funds as examples. The basics of what is taxed and how profit is calculated are on our page on how rental income is taxed.

Where does property income sit in the calculation?

New section 16A places property income in its own position in the order of total income. If you have no savings or dividend income, property income is the highest part of your income. If you do, property income sits immediately before savings income, or immediately before dividends if you have no savings income. HMRC summarises the new order as:

  1. income that is not property, savings or dividend income, such as employment, pensions and trading profits;
  2. property income;
  3. savings income;
  4. dividend income.

New section 25(3A) then requires reliefs and allowances, including the Personal Allowance, to be deducted from the first layer before they can be set against property, savings or dividend income. Only if they exceed that first layer is the balance used against the other three, in the way that is most beneficial to you. Until April 2027, section 25(2) lets them be deducted in whatever way gives the lowest bill. The effect is that your property profits will usually be taxed in a higher slice of your bands than your salary.

How does it work with numbers?

HMRC’s technical note includes this example for 2027 to 2028: employment income of £30,000, a £3,000 share of residential letting profit, a £1,000 share of finance costs, £400 of interest and £200 of dividends.

  • The Personal Allowance is set against employment income: £30,000 less £12,570 leaves £17,430, taxed at 20%, which is £3,486.
  • Property income of £3,000 is taxed at the property basic rate of 22%, which is £660.
  • The interest is covered by the Personal Savings Allowance and the dividends by the dividend allowance.
  • Tax before reductions is £4,146. Finance cost relief of £1,000 at 22% gives a reduction of £220, leaving £3,926.

Illustration only. A landlord has a salary of £45,000 and a rental profit of £20,000, with no finance costs, in 2027 to 2028. The Personal Allowance covers the first £12,570 of salary, leaving £32,430 taxed at 20%. That leaves £5,270 of the £37,700 basic rate band, so £5,270 of rental profit is taxed at 22% (£1,159.40) and the other £14,730 at 42% (£6,186.60). Tax on the property income is £7,346, compared with £6,946 at the old rates of 20% and 40%: an increase of £400, or two pence for every pound of profit.

What happens to mortgage interest relief, losses and allowances?

HMRC’s technical note confirms:

  • Residential finance costs. Relief continues to be given as a tax reduction at Step 6 of the calculation in section 23 of the Income Tax Act 2007, but from 2027 to 2028 at the property basic rate of 22%. See our page on landlord mortgage interest relief.
  • Carried forward losses. Property losses carried forward must still be set against property income; see rental losses.
  • Property allowance and Rent a Room. Both remain unchanged; see our page on the property income allowance.
  • National Insurance. The treatment of property income for National Insurance does not change.

Does it apply in Scotland and Wales?

The UK rates of 22%, 42% and 47% are for England, Wales and Northern Ireland. Section 8 of the Finance Act 2026 and Schedule 2 provide for Scottish and Welsh property rates to be set by the Scottish Parliament and Senedd Cymru. The Finance Act 2026 (Scottish and Welsh Property Income Rates) (Appointed Day and Tax Year) Regulations 2026, SI 2026/1023, brought those provisions into force on 16 September 2026 and appointed 2027 to 2028 as the first tax year they cover. Scottish and Welsh taxpayers should therefore check the property rates their own parliament sets for 2027 to 2028 rather than assume the UK figures. Our pages on Scottish income tax and Welsh rates of income tax explain how taxpayer status is decided.

Who else is affected?

  • Non resident landlords. Tax withheld under the Non Resident Landlord Scheme will be at the property basic rate, with credit given in the usual way when a return is filed.
  • REITs and property funds. Withholding on property income distributions from real estate investment trusts and property authorised investment funds will be at the property basic rate.
  • Partners. The changes apply to individual partners, including partners in partnerships with property income.
  • Trusts and estates. Trusts with accumulated or discretionary income will pay 47% on property income, other trusts 22%, and estates of deceased persons 22%.

Companies are outside the measure, which is an income tax change for individuals. A company letting property pays corporation tax, for which the Finance Act 2026 sets a main rate of 25% for the financial year 2027.

HMRC estimates that by 2029 to 2030, 2.4 million landlords, 6% of taxpayers, will pay more tax as a result. There are no new reporting requirements: tax continues to be paid through Self Assessment or PAYE codes, and Making Tax Digital for Income Tax is not affected.

What mistakes should landlords avoid?

  • Budgeting at 20% and 40%. From 6 April 2027 each band costs two points more on rental profit.
  • Assuming the Personal Allowance will shelter rent first. Section 25(3A) sends it to salary, pensions and trading profits first.
  • Forgetting the extra relief on finance costs. The tax reduction rises to 22% too, which partly offsets the increase for mortgaged landlords.
  • Treating payments on account as fixed. Each payment on account is usually half of the previous year’s tax, so payments for 2027 to 2028 based on a 2026 to 2027 bill will not reflect the higher rates, and the shortfall falls into the balancing payment due by 31 January.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.