Budget landlord property tax changes: 22% rate from April 2027

The landlord property tax changes in the Budget are narrower than many headlines suggest. From April 2027, rental profits in England, Wales and Northern Ireland will be taxed at new property rates of 22%, 42% and 47%, each two percentage points above the current income tax bands. Allowances such as the £1,000 property allowance are not changing.

The Budget is no longer looming. GOV.UK technical notes say the measures were announced at Budget 2025 and are included in Finance Bill 2025 to 2026, so the question for landlords now is what happens in the 2026 to 2027 and 2027 to 2028 tax years. This explainer sets out the rates, the dates, two worked examples and the points that remain open.

How the new property income rates work

At present, property income is grouped with employment, pension and trading income and taxed at the ordinary income tax rates. The government is creating separate rates for property income, as already exists for savings and dividends. For 2027 to 2028 the property basic rate will be 22%, the property higher rate 42% and the property additional rate 47%.

The government’s stated aim is to tax income from assets more fairly. In its technical note it says people with property, savings or dividend income "pay less tax than those whose income comes from employment or self-employment as they do not pay National Insurance". National Insurance treatment of property income is not changing.

Property income will sit in a new order within the income tax calculation: income that is not property, savings or dividend income comes first, then property income, then savings income, then dividends. The basic rate band stays at £37,700 and the higher rate band at £87,440, according to the technical note. How landlords report and pay tax will not change. The government says "it is only the rates of tax charged that will change".

Landlord tax allowance changes: what stays the same

The government says the property allowance and the Rent a Room Scheme are unchanged. Landlords with gross property income of £1,000 or less a year do not need to report it to HMRC and pay no tax on it. Above that, they can use the £1,000 allowance or deduct actual expenses. Rent a Room lets people earn up to £7,500 a year tax free from furnished accommodation in their own home, or £3,750 for joint lettings.

Two details matter more. First, carried-forward property losses must still be set against property income. Second, relief for residential finance costs, which is the tax reduction landlords receive on mortgage interest instead of deducting it as an expense, will be calculated at the property basic rate of 22% from 2027 to 2028.

The ordering change is the less obvious one. From April 2027 the personal allowance, currently £12,570, and other general reliefs must be set against income that is not property, savings or dividend income first. Any balance is then set against property, savings or dividend income in the way that is most beneficial to the individual. Allowances aimed at specific income, such as the property allowance, still apply to that income first.

Rental income tax: two worked examples

The figures below are Reported.News illustrations using the published rates, not HMRC calculations. They ignore other reliefs and assume the property allowance is not used. The first example shows the ordering rule. A landlord has £8,000 of employment income and £10,000 of rental profit after expenses. The personal allowance of £12,570 is used against the £8,000 first, leaving £4,570 to set against rent, so £5,430 of rental profit is taxable. At 22% that is £1,194.60, against £1,086 at 20%, a difference of £108.60.

The second example shows finance costs. A landlord has £10,000 of profit before mortgage interest and £6,000 of interest. A basic-rate taxpayer would pay £2,200 at 22%, less relief of £1,320 (22% of £6,000), leaving £880. Under the current 20% rates the figure is £2,000 less £1,200, or £800, so the bill rises by £80.

A higher-rate landlord in the same position would pay £4,200 at 42%, less the same £1,320 relief, which is £2,880. Under current rates the figure is £4,000 less £1,200, or £2,800. The extra £80 is the same because relief is given at the basic rate, which is why highly geared landlords see a smaller rise than their gross rental income would suggest.

Key dates for the rate changes

The dividend change comes first. Dividend rates rise from 6 April 2026, so they apply to distributions made on or after that date, including loans or benefits given to participators in close companies. This matters to landlords who hold property in a company and pay themselves through dividends. The property and savings changes, and the new ordering rules, take effect from 6 April 2027.

The table compares current and new rates, as set out in the GOV.UK documents. Property rates are shown at two percentage points above the current income tax bands, as the government describes the increase.

The government expects the three measures together to raise £285m in 2026 to 2027, £1,045m in 2027 to 2028 and £2,340m by 2030 to 2031, according to the impact summary in the GOV.UK note. Those totals cover property, savings and dividend income combined, not landlords alone.

Property investment tax and stamp duty for landlords

The separate property rates apply in England, Wales and Northern Ireland. The government says it will engage with the Scottish and Welsh governments so they can set property income rates within their existing income tax powers. Savings and dividend changes apply UK-wide.

In Wales, the Welsh Government said in a written statement that it would keep Welsh Rates of Income Tax at 10p in each band, which it said delivers parity with England and Northern Ireland and means no change in 2026 to 2027. Finance Secretary Mark Drakeford wrote that the Welsh Government intends to make further changes to Multiple Dwelling Relief, including raising the minimum tax rule rate from 1% to 3%.

On stamp duty, landlords in Wales face unchanged Land Transaction Tax residential and non-residential rates and thresholds for 2026 to 2027, according to the same statement. A new refund rule will apply to the higher residential rates where a private landlord buys a home and leases it to a Welsh local authority through Leasing Scheme Wales. The documents reviewed for this article do not cover Stamp Duty Land Tax in England.

Your questions answered

Will I pay more if I only earn a small amount from letting?

Not if your property income is £1,000 or less, which is tax free and need not be reported. The government also says over 90% of UK taxpayers have no taxable property income. If you are above the allowance, the rise is two percentage points on the taxable part of your rental profit.

Does mortgage interest relief change?

The mechanism is unchanged. Landlords with residential finance costs still receive a tax reduction rather than deducting the interest as an expense. From 2027 to 2028 that reduction will be calculated at the property basic rate of 22%.

Does this apply to landlords in Scotland?

The separate property rates apply to England, Wales and Northern Ireland. The government says it will engage with the Scottish and Welsh governments on giving them the ability to set property income rates. That power will be subject to commencement following that engagement.

What about non-resident landlords?

The Non-Resident Landlords Scheme withholds income tax on UK property income at the basic rate. After the changes, the withholding rate will be the property basic rate. Non-UK landlords can still apply to HMRC to receive rent gross and file tax returns.

Will I pay National Insurance on rent?

No. The technical note says the treatment of property, savings and dividend income for National Insurance purposes will not change as a result of this policy.

Are cash ISAs affected too?

Landlords who save outside property are affected by one further change. From 6 April 2027 the annual cash ISA limit will be £12,000 within the overall £20,000 ISA limit, though savers over 65 can still put up to £20,000 in cash. Interest inside an ISA stays tax free.