From 6 April 2027, rental profits will move onto their own income tax rates: 22% at the basic rate, 42% at the higher rate and 47% at the additional rate. Two points above the current main rates. Announced at the November 2025 Budget, legislated through the Finance Act 2026 and now law.
Most landlords have either not clocked it yet, or they have seen the headline rate rise and written it off as a minor adjustment. Both responses miss the point.
Why a Separate Property Income Tax Rate Is a Much Bigger Deal
A two-point rise on its own would be irritating but manageable. The significance of this change is structural.
For the first time, rental income has been formally detached from the main income tax system and given its own rate band. That is a political and fiscal milestone. Once a separate rate exists, any future Chancellor can move it independently without touching employment income or pension income. The 2% is the opening position, not the ceiling.
The parallel with Section 24 is exact. That measure singled out residential landlords by restricting mortgage interest relief, something no other business faces. This does the same thing by a different mechanism: it treats rental income as passive asset income rather than as the product of an active business with staff, maintenance costs, compliance obligations and now the full weight of the Renters’ Rights Act.
It is worth noting that savings income receives the same 2-point rise to 22%, 42% and 47%, so property is not alone. But the framing matters. Rental income is now taxed in the same bracket as interest on a savings account, even though running a property portfolio involves real operational risk, real costs and real work. That distinction has been deliberately collapsed.
Two Less Obvious Changes Landlords Should Understand
The headline rate rise gets most of the attention. These two technical changes are getting far less.
The personal allowance ordering rule. Under the new system, the personal allowance and other reliefs must be applied against employment, trading and other income before they can be set against property income. For a landlord with a salary or pension that already uses up most of their personal allowance, this means rental profits land in the new property rate bands with little or no allowance available to offset them. Your accountant will need to model your position under the new rules, currently not the old ones.
Finance cost relief rises to 22%., individuals receive a tax reduction on residential mortgage interest calculated at the basic rate of 20%. From April 2027, that relief will be calculated at the new property basic rate of 22%. A small increase, but it needs to be factored into your numbers alongside the rate rise itself.
Three Things to Do Before April 2027
There is still time to act, but not indefinitely.
Get your 2027/28 numbers modelled. The combined effect of the new rates, the allowance ordering change and the adjusted finance cost relief will look different for every portfolio. You need the actual figures for your situation, not a rule of thumb.
Review ownership splits. If a property is jointly owned, the allocation of income between owners matters more under the new rates. Whether the current split still makes sense is worth reviewing before next April.
Consider the structure for new purchases. Limited companies are unaffected by these changes because they pay corporation tax, not income tax. That does not automatically make incorporation the right answer for everyone, but it makes it a more compelling question for new acquisitions than it was before.
A Note From Us
We are a Coventry property company, not tax advisers. This is a briefing, not advice for your specific situation. What to do about these changes depends on your numbers, your structure and your longer-term plans.
If you would like a recommendation to a good local accountant who can model the impact for your portfolio, get in touch and we will point you in the right direction.
Source: Changes to tax rates for property, savings and dividend income — technical note, HMRC, November 2025
