UK Property Income Tax 2027 Reform Guide 2026/27

Q What exactly changes for property income from 6 April 2027?

From the 2027/28 tax year property income has its own rates of income tax: the property basic rate is 22%, the property higher rate 42% and the property additional rate 47%, each 2 percentage points above today's 20% / 40% / 45%. The rates were announced at Budget 2025 and are set by Finance Act 2026 s.7 (Royal Assent 18 March 2026); s.6 creates the new rates in ITA 2007 for 2027/28 onwards. "Property income" means profits of a UK property business or an overseas property business and a few related receipts (new ITA 2007 s.17A), so it covers residential and commercial lettings alike, and former furnished holiday lets, whose special regime was abolished from April 2025 by Finance Act 2025 s.25 and Schedule 5. Savings income rates also rise to 22% / 42% / 47% from April 2027 across the UK, and the dividend ordinary and upper rates rose to 10.75% and 35.75% from 6 April 2026 (additional rate unchanged at 39.35%). HMRC estimates that by 2029/30 about 2.4 million landlords will pay more tax as a result (HMRC policy paper).

Q How do the new property rates interact with the Personal Allowance and the bands?

The bands themselves do not change: the Personal Allowance stays £12,570, the basic-rate band £37,700 and the additional-rate threshold £125,140, all frozen to 5 April 2031. Two ordering rules decide which rate each pound of rent meets. Allowances and reliefs are set against other income (salary, pension, trading profit) before property, savings or dividend income (new ITA 2007 s.25(3A)), and property income is treated as the top slice of non-savings income, sitting below any savings and dividend income (s.16A). Worked examples for 2027/28, tax on the property profit only, England or Northern Ireland taxpayer: Salary £30,000 + rental profit £20,000: £4,000 at today's rates, £4,400 at the property rates (+£400). Salary £45,000 + rental profit £30,000 (spans the basic and higher bands): £10,946 becomes £11,546 (+£600). Salary £60,000 + rental profit £25,000: £10,000 becomes £10,500 (+£500). Salary £180,000 + rental profit £40,000: the salary already uses the allowance and both lower bands, so all the profit is taxed at the additional rate: £18,000 becomes £18,800 (+£800). In each case the increase is 2% of the taxable rental profit.

Q How does Section 24 interact with the 2027 property income reform?

Mortgage interest and other finance costs on residential lets are still not deducted from rental profit; they earn a tax reduction instead (ITTOIA 2005 s.272A and s.274A). Today that reduction is given at the basic rate, 20%. From 2027/28 Finance Act 2026 Schedule 1 para 40 amends s.274AA(5) so it is given at the property basic rate, 22%. The gap between the rate you pay and the relief you get is therefore unchanged: 0 points for a basic-rate landlord, 20 points at the higher rate and 25 points at the additional rate, the same as now. Worked example, higher-rate landlord: rent £18,000, other expenses £4,000, mortgage interest £8,000. Profit before interest £14,000. Now: £14,000 x 40% less £8,000 x 20% = £4,000. From 2027/28: £14,000 x 42% less £8,000 x 22% = £4,120, an increase of £120, which is 2% of the £6,000 profit after interest. The reduction is still capped by the usual limits in s.274AA: the relievable finance costs are limited to the property profits and, where it is lower, to adjusted total income.

Q What happens to Scottish and Welsh landlords?

Income tax follows where you live, not where the property is: a Scottish taxpayer with a flat in England is taxed as a Scottish taxpayer. Scotland: Finance Act 2026 Schedule 2 amends Scotland Act 1998 s.80C so that the Scottish Parliament can set rates for Scottish taxpayers' property income, using the same band limits as for other income. Section 8 and Schedule 2 were brought into force on 16 September 2026 for 2027/28 onwards (SI 2026/1023), so the rates that will apply to Scottish taxpayers' property income in 2027/28 are for the Scottish Parliament to set. They had not been set as at 15 October 2026; the Scottish Government plans to present its draft 2027-28 Budget on 3 December 2026. Wales: Welsh property rates are worked out like the Welsh rates of income tax: take the UK property rate, deduct 10 percentage points and add the rate set by the Senedd (new ITA 2007 s.6B(1A)). If the Senedd sets 10p, as it has for 2026/27, when the Welsh rates on other income match the rest of the UK (GOV.UK Welsh Income Tax), a Welsh taxpayer pays the same 22% / 42% / 47% as England and Northern Ireland. The Senedd had not set its 2027/28 rate as at 15 October 2026; the Welsh Government plans to publish its draft 2027-28 Budget on 17 November 2026. The 22% finance-cost relief, the joint-ownership rules and Capital Gains Tax are not devolved and apply UK-wide.

Q Should I incorporate my buy-to-let portfolio ahead of the 2027 reform?

A company does not pay income tax, so the property rates do not reach profits made inside a company. It pays Corporation Tax instead (19% small profits rate up to £50,000, 25% main rate above £250,000, marginal relief between), and the Section 24 restriction in ITTOIA 2005 applies to individuals, not companies. The catch is getting the money out: dividends from 2026/27 are taxed at 10.75%, 35.75% or 39.35% above the £500 dividend allowance, so a higher-rate landlord who draws out every year's profit can pay more in total than as an individual. The one-off costs are usually larger than the rate change: transferring residential property to a company is a purchase at market value for Stamp Duty Land Tax, with the 5% higher rates for additional dwellings in England and Northern Ireland; the transfer is a disposal for CGT (18% / 24%); and the mortgages normally have to be refinanced. Incorporation relief under TCGA 1992 s.162 can defer the gain only if the letting amounts to a business, and for transfers on or after 6 April 2026 it must be claimed by the first anniversary of 31 January after the tax year of transfer (Finance Act 2026 s.39). This is a decision for a tax adviser with your figures; the 2pp rise on its own rarely decides it.

Q How does the 2027 reform affect jointly owned property?

Income from property held jointly by spouses or civil partners who live together is split 50:50 for income tax (ITA 2007 s.836), whatever the actual ownership, unless they make a joint declaration of unequal beneficial interests on Form 17 (s.837), which must match the real beneficial interests and reaches HMRC within 60 days of signing. Each owner is taxed on their share at their own rates. Because the rise is the same 2 points in every band, the reform does not change who should own what; it raises the cost of each band by 2 points. Example, 2027/28: £20,000 profit, one spouse with no other income and one with a £60,000 salary. Split 50:50 the property tax is £4,200; if the spouse with no other income genuinely owns the whole property (and a Form 17 is in place for jointly held property), it is £1,635. Changing beneficial ownership is a real gift of the property: it needs lender consent and conveyancing, and between spouses living together it is on a no-gain, no-loss basis for CGT. Unmarried co-owners are taxed on their actual shares and have no such CGT treatment.

Q Do the property allowance and Rent a Room still apply?

Yes. Neither the £1,000 property allowance nor the Rent a Room threshold (£7,500 a year, halved to £3,750 if the income is shared, per GOV.UK) is changed by Finance Act 2026. Income covered by them stays tax-free. Whatever is taxable as profits of a property business is charged at the property rates from 2027/28, so a higher-rate taxpayer pays 42% rather than 40% on rent above the threshold.

Q What about overseas property income for UK residents?

"Property income" includes the profits of an overseas property business (new ITA 2007 s.17A(2)(a)), so foreign rent received by a UK resident is taxed at the property rates from 2027/28. Foreign tax paid on the same income can usually be credited against the UK tax on it, up to the UK tax on that income. Someone in their first 4 tax years of UK residence after at least 10 consecutive years of non-residence can claim the foreign income and gains regime, which covers profits of an overseas property business, at the cost of losing the Personal Allowance and the CGT annual exempt amount for that year (GOV.UK FIG guidance).

Q What should landlords do before April 2027?

(1) Rework the 2027/28 figures at 22% / 42% / 47% on the profit, with finance-cost relief at 22%. (2) Check whether any savings or dividend income will sit above the rental profit and push it into a higher band, because property income is now taxed below savings and dividends. (3) For jointly owned property, check that the ownership on record (and any Form 17) matches the real beneficial interests. (4) Making Tax Digital for Income Tax already applies from 6 April 2026 to landlords and sole traders whose qualifying income was over £50,000 in 2024-25 (SI 2026/336 reg. 27), with lower thresholds in later years. (5) Take advice before incorporating or transferring property: the transaction costs usually outweigh a 2-point rate change. (6) Scottish and Welsh taxpayers should watch for the rates their own parliaments set for 2027/28.