Contents
- The property income tax rates taking effect in April 2027
- Why the government is taxing rental profit differently
- The personal allowance change that makes the rise bigger
- Not every landlord pays the new property rates
- Landlords with modest earned income lose the most
- What to do for landlord clients before April 2027
- Questions
This is general information for UK accountancy practice owners, accurate as of October 2026. The rates and rules below are confirmed in Finance Act 2026 and take effect on 6 April 2027. Take independent advice before applying any of this to a specific client.
At Autumn Budget 2025, the Chancellor announced that rental profit would move onto its own income tax rates from April 2027, two percentage points above the rates charged on earnings. Royal Assent for the change came on 18 March 2026, inside Finance Act 2026, and HMRC has set out how the bill lands for the roughly 2.4 million individual landlords affected. A second change, to the order in which the personal allowance is set against different types of income, adds a further cost on top of the headline rise for some landlord clients. Both changes affect any practice with landlord clients, and the planning window before 6 April 2027 is under eighteen months.
The property income tax rates taking effect in April 2027
For the 2027/28 tax year, rental profit is no longer taxed at the normal income tax rates. It has its own property rates, each two percentage points above the equivalent rate on earnings:
| Band | 2026/27 rate (all income) | 2027/28 property rate |
|---|
| Basic rate (£12,570–£50,270) | 20% | 22% |
| Higher rate (£50,271–£125,140) | 40% | 42% |
| Additional rate (over £125,140) | 45% | 47% |
The order in which income is taxed does not change: non-savings, non-property income such as salary, trading profit and pension is taxed first, then property income, then savings income, then dividends. What changes is the rate that applies once property income's turn comes round. On £10,000 of basic-rate rental profit, the rise alone costs an extra £200 a year. On £20,000 taxed at the higher property rate, it is an extra £400.
Why the government is taxing rental profit differently
The published rationale, set out in HM Treasury's technical note alongside Autumn Budget 2025, is that rental profit carries no National Insurance, in the same way dividend and savings income does not. The property rates close part of that gap between the tax paid on a salary and the tax paid on income from an asset, without the government going ahead with the National Insurance charge on rental income that had been widely reported before the Budget. HMRC's own estimate is that 2.4 million landlords, around 6% of taxpayers, will pay more as a result by 2029/30. More than 90% of taxpayers report no taxable property income at all, so the change reaches a specific group of taxpayers.
The personal allowance change that makes the rise bigger
A second change lands on the same date and gets far less attention. Taxpayers with income from more than one source have been able to set their personal allowance and other unrestricted reliefs against whichever type of income reduces their bill by the most, a rule known as beneficial ordering. From 6 April 2027, that flexibility narrows. Any personal allowance or unrestricted relief must first be set against income that is not property, savings or dividend income, namely earnings, trading profit and pension income. Only the amount left over, if any, can then be set against property income, savings income or dividends.
For a landlord with earnings or pension income lower than their personal allowance, this removes a planning option that mattered more as soon as property income carried its own, higher rate. Before 2027/28 the allowance could be pointed at whichever income was taxed hardest. From 2027/28 it is used up on earnings first, whether or not that is the best result for the client.
A worked example using salary and rental profit in the same tax year
Take a landlord with £15,000 of salary and £15,000 of rental profit in 2027/28, £30,000 in total, all inside the basic rate band. These figures are illustrative, built on the confirmed rates and the personal allowance of £12,570, which is frozen until April 2031.
If the personal allowance could still be pointed at whichever income saved the most tax, the obvious choice is to set it against the rental profit, since that is now taxed at 22% against 20% on salary. The allowance absorbs the first £12,570 of rental profit, leaving £2,430 of rental profit taxed at 22% (£534.60) and the full £15,000 of salary taxed at 20% (£3,000): £3,534.60 in total.
Under the 2027/28 rule, the allowance is used against salary first. £12,570 of salary is tax-free, leaving £2,430 of salary taxed at 20% (£486) and the full £15,000 of rental profit taxed at 22% (£3,300): £3,786 in total.
The ordering change alone costs this client £251.40, on top of the £300 the two-point rate rise already costs on £15,000 of rental profit. Neither figure is large on its own. Across a handful of landlord clients, each holding a few properties, the combined effect is real enough to raise with each of them before April 2027.
Not every landlord pays the new property rates
The property rates apply to personal income tax only. Landlords who hold property through a limited company continue to pay corporation tax on rental profit, 19% to 25% depending on profit, with full relief for mortgage interest, and neither change described above applies to them. The distinction between personal and corporate landlords has mattered for several years already; the property rates are one more reason it continues to matter.
The rates also apply by default only in England, Wales and Northern Ireland. The Scottish Parliament and the Senedd both have the power under Finance Act 2026 to set their own property rates separately from the rates Westminster has set for 2027/28, in the same way they already set their own non-savings income tax rates. Scotland already taxes non-dividend, non-savings income at different rates from the rest of the UK, so a client with property income and a Scottish address needs their own position checked individually.
Landlords with modest earned income lose the most
The ordering change bites hardest on a specific profile: a client whose earnings, trading profit or pension are below or close to the £12,570 personal allowance, and whose rental profit is large by comparison. A retired client with a small pension and a substantial buy-to-let portfolio is the clearest case. Most of their personal allowance now has nowhere to go but their pension income, leaving far more of the rental profit exposed to the full 22%, 42% or 47% property rate than before.
This matters for joint ownership too. Spouses and civil partners who hold a rental property as beneficial joint tenants are taxed 50/50 by default, regardless of who earns what from other sources. Moving to tenants in common, with a formal declaration of trust and a Form 17 election to HMRC, can put more of the rental profit against whichever spouse has the most unused personal allowance and basic rate band. Reviewing this now matters more because the ordering rule narrows how far that allowance will stretch.
What to do for landlord clients before April 2027
The planning window runs to 6 April 2027. For each landlord client, that gives time to:
- Model 2027/28 liability now, using the confirmed 22%, 42% and 47% property rates and the new personal allowance order.
- Check who holds the property and how. For couples, confirm the beneficial ownership split and whether a Form 17 election would move more of the rental profit to the spouse with the better personal allowance and basic rate band position.
- Revisit the incorporation question for larger portfolios. A landlord close to or over the higher rate threshold with several mortgaged properties may now find the gap between personal and corporate tax rates wide enough to justify running the numbers again, allowing for the costs of transferring properties into a company.
- Identify clients with low earned income and high rental profit. These are the clients hit hardest by the ordering change, independently of the headline rate rise, and the ones who benefit most from modelling the exact numbers before the tax year starts.
- Build the April 2027 numbers into this year's tax planning meetings, so each client sees the figure before the first payment on account under the new rules is due.
The same clients are often also dealing with Making Tax Digital for Income Tax. Our pieces on how MTD for Income Tax affects accountancy practices and how many MTD for Income Tax returns came in for the first quarter cover the compliance side of the same client relationship.
