The New 22%, 42% and 47% Property Income Tax Rates Explained – Including Mortgage Interest Relief and Making Tax Digital
By Steve Bicknell FCMA, CGMA
Landlords are facing another significant tax change.
From 6 April 2027, property income will have its own separate Income Tax rates.
For landlords in England, Wales and Northern Ireland, the rates announced by the Government for 2027/28 are:
| Property Income Tax Rate | Current Main Rate | From 6 April 2027 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
Each rate is therefore two percentage points higher than the corresponding current main Income Tax rate.
For a landlord with £30,000 of taxable rental profit, that could mean hundreds of pounds of additional tax every year.
For landlords with larger portfolios, the additional cost could run into thousands.
But there is an interesting twist.
The rate of Finance Cost Relief for residential mortgage interest will also increase from 20% to 22%.
And that’s not the only change arriving in April 2027.
The Making Tax Digital for Income Tax threshold falls from £50,000 to £30,000 at the same time, before dropping again to £20,000 from April 2028.
So April 2027 could mean:
higher tax + more landlords entering MTD + quarterly reporting + new mortgage interest calculations.
How much more could you pay?
And what should landlords be considering before the changes arrive?
Let’s take a closer look.
Why Are Property Tax Rates Changing?
Until now, property income has generally been taxed using the main Income Tax rates applying to non-savings, non-dividend income.
The Government is changing this by creating separate rates specifically for property income.
From 2027/28, these will be:
- 22% property basic rate
- 42% property higher rate
- 47% property additional rate
The new property rates take effect from 6 April 2027.
The Government has also confirmed that the Property Allowance and Rent a Room Scheme remain unchanged, while carried-forward property losses will continue to be set against property income.
How Much More Tax Could a Landlord Pay?
Let’s start with a simple example where there is no mortgage interest.
Suppose Sarah owns a buy-to-let property producing taxable rental profits of:
£25,000 per year
Assume all of that property income falls within her basic-rate band.
2026/27
£25,000 × 20% = £5,000
2027/28
£25,000 × 22% = £5,500
Extra tax: £500 per year
For every £10,000 of property income affected by the two-percentage-point increase, the additional Income Tax is potentially:
£200
So, ignoring allowances, finance costs and other complications:
| Taxable Property Income | Potential Additional Tax |
| £10,000 | £200 |
| £20,000 | £400 |
| £30,000 | £600 |
| £50,000 | £1,000 |
| £75,000 | £1,500 |
| £100,000 | £2,000 |
The actual result depends on your other income, allowances, reliefs and which property tax bands apply.
Higher-Rate Landlords
Suppose David’s employment income already means that all his rental profits fall within the higher-rate band.
His property business produces:
£30,000 taxable profit
2026/27
£30,000 × 40% = £12,000
2027/28
£30,000 × 42% = £12,600
Extra tax: £600
The property additional rate similarly becomes 47%.
But for residential landlords with mortgages, that isn’t the end of the calculation.
What Happens to Mortgage Interest Relief?
This is where the new rules become particularly interesting.
Since the full introduction of the residential property finance-cost restriction—often referred to as Section 24—individual residential landlords have generally been unable to deduct mortgage interest from rental income when calculating taxable property profits.
Instead, qualifying residential finance costs can generate a basic-rate tax reduction.
Currently that relief is calculated at 20%.
From 6 April 2027, the Government has confirmed that Finance Cost Relief will instead be calculated using the new:
22% property basic rate
So property Income Tax rates are increasing—but the rate used for residential Finance Cost Relief is increasing too.
How Finance Cost Relief Works
Suppose a landlord has:
Rent: £40,000
Repairs, insurance, agent fees and other allowable expenses: £10,000
Mortgage interest: £10,000
For Income Tax purposes, the taxable property profit is broadly:
£40,000 rent
less £10,000 allowable non-finance expenses
=
£30,000 taxable property profit
The £10,000 residential mortgage interest isn’t simply deducted from that figure.
Instead, subject to the statutory restrictions, it generates a tax reduction.
Currently:
£10,000 × 20%
=
£2,000 Finance Cost Relief
From April 2027:
£10,000 × 22%
=
£2,200 Finance Cost Relief
So the landlord potentially receives an extra £200 of tax reduction.
But the property income itself is also being taxed at a higher rate.
Let’s put the two together.
Worked Example – Basic-Rate Landlord With a Mortgage
Assume:
Rental income: £40,000
Other allowable expenses: £10,000
Mortgage interest: £10,000
Taxable property profit: £30,000
For simplicity, assume all the property income falls within the property basic-rate band and the full Finance Cost Relief is available.
2026/27
Tax:
£30,000 × 20% = £6,000
Finance Cost Relief:
£10,000 × 20% = £2,000
Tax after Finance Cost Relief = £4,000
2027/28
Tax:
£30,000 × 22% = £6,600
Finance Cost Relief:
£10,000 × 22% = £2,200
Tax after Finance Cost Relief = £4,400
Additional tax from April 2027: £400
Notice something interesting?
The landlord’s economic profit before tax is:
£30,000 taxable property profit
less £10,000 mortgage interest
=
£20,000
And:
£20,000 × 2%
=
£400
The increased Finance Cost Relief therefore provides some compensation for the higher tax rate—but it doesn’t eliminate the increase.
Higher-Rate Landlord – Same Property
Now assume the same property is owned by a higher-rate taxpayer.
Again:
Taxable property profit: £30,000
Mortgage interest: £10,000
2026/27
£30,000 × 40% = £12,000
Less Finance Cost Relief:
£10,000 × 20% = £2,000
Tax = £10,000
2027/28
£30,000 × 42% = £12,600
Less Finance Cost Relief:
£10,000 × 22% = £2,200
Tax = £10,400
Again:
Additional tax = £400
So although the Finance Cost Relief rate rises to 22%, the landlord is still worse off.
Does This Reverse Section 24?
No.
This is important.
The Government is not abolishing Section 24.
Individual residential landlords will still generally calculate their taxable property profits without deducting residential finance costs.
Finance Cost Relief remains a tax reduction.
What changes from April 2027 is the rate used to calculate it:
20% → 22%
Section 24 therefore remains a major consideration for leveraged property investors.
Highly Geared Landlords Need to Be Careful
There is another complication.
Finance Cost Relief isn’t necessarily as simple as:
Mortgage interest × 22%
The amount eligible for the tax reduction can be restricted.
Broadly, the calculation takes account of qualifying finance costs, property business profits and adjusted total income.
Unused qualifying finance costs may potentially be carried forward.
This can be particularly important where:
- mortgage costs are high;
- property profits are low;
- a landlord has significant other reliefs;
- there are brought-forward finance costs; or
- overall taxable income is relatively low.
So don’t assume that every £10,000 of residential mortgage interest will automatically generate £2,200 of immediate tax reduction from April 2027.
Have You Remortgaged? There’s Another Interest Trap
There is another issue landlords shouldn’t overlook.
Not all interest necessarily qualifies for tax relief simply because the loan is secured against a rental property.
The purpose and amount of the borrowing can matter.
This can become particularly important where a landlord has:
- remortgaged a property;
- released equity;
- increased borrowing substantially;
- refinanced after the property increased in value; or
- used some of the additional borrowing for personal purposes.
Before calculating Finance Cost Relief at 22%, you first need to establish:
How much of the interest actually qualifies for relief?
A higher relief rate isn’t much help if part of the underlying finance cost doesn’t qualify in the first place.
We’ve previously examined this issue in:
Have You Remortgaged? Will That Restrict the Recovery of Interest Beyond the Section 24 Rules?
This is worth revisiting before April 2027 if your property borrowing has changed substantially since the property was acquired.
April 2027 Also Brings a Major MTD Change
The property tax increase isn’t the only reason landlords should have 6 April 2027 in their diaries.
Making Tax Digital for Income Tax is being introduced in stages.
| Start Date | Qualifying Income |
| 6 April 2026 | Over £50,000 |
| 6 April 2027 | Over £30,000 |
| 6 April 2028 | Over £20,000 |
This means thousands more landlords will be brought into MTD at exactly the same time as the new property tax rates begin.
The MTD Threshold Is Based on Income – Not Profit
This distinction is extremely important.
For MTD purposes, qualifying income broadly means your gross income from self-employment and property before expenses.
Suppose a landlord receives:
Gross rents: £36,000
Allowable property expenses: £12,000
Rental profit: £24,000
They might look at the £24,000 profit and conclude:
“I’m below the £30,000 MTD threshold.”
But their qualifying income could instead be:
£36,000
That could bring them within MTD from 6 April 2027.
And if a person has both self-employment and property income, the relevant qualifying income can include both.
What Will Landlords Have to Do Under MTD?
Landlords within Making Tax Digital for Income Tax will generally need to:
- keep digital records using compatible software;
- record property income and expenses digitally;
- send quarterly updates to HMRC using that software; and
- submit their tax return using compatible software.
So April 2027 isn’t simply about paying more tax.
For many landlords it will also mean more frequent reporting and a significant change to bookkeeping.
Bicknell Business Advisers’ Advice
If your gross property and qualifying self-employment income is approaching £30,000, don’t wait until April 2027.
Start preparing your bookkeeping and digital records now.
And even if you’re below £30,000, remember:
The threshold falls again to £20,000 from April 2028.
April 2027 – A Perfect Storm for Landlords?
Put the changes together and April 2027 starts to look much more significant.
Property Income Tax
20% → 22%
40% → 42%
45% → 47%
Residential Finance Cost Relief
20% → 22%
Making Tax Digital
Threshold:
£50,000 → £30,000
Then, from April 2028:
£30,000 → £20,000
For some landlords that means:
Higher tax + digital records + quarterly reporting
That’s why I think 2026/27 should be treated as a planning year.
Does This Make Property Companies More Attractive?
Potentially.
But the answer remains:
It depends.
The new 22%, 42% and 47% rates are Income Tax rates applicable to property income.
A property investment company is instead generally subject to Corporation Tax on its profits.
There is also an important financing difference.
The residential Finance Cost Relief restriction applies to individuals rather than companies.
A property investment company’s financing costs are instead dealt with under the Corporation Tax rules, including the loan relationship regime, subject to the relevant conditions and restrictions.
This can produce a very different result for a highly leveraged property portfolio.
But that doesn’t mean:
“Everyone should put their properties into a company.”
You also need to consider:
- Corporation Tax;
- tax when extracting profits;
- dividend tax;
- mortgage rates;
- SDLT;
- Capital Gains Tax;
- refinancing costs;
- inheritance planning; and
- your eventual exit strategy.
The April 2027 changes simply add another reason to run the numbers properly.
Another Potential Company Benefit – Qualifying Interest Relief
There is another financing opportunity property investors sometimes overlook.
Suppose you personally borrow money and then use those funds to make a qualifying investment in, or qualifying loan to, a property company.
Subject to the statutory conditions, qualifying loan interest relief may potentially be available against your personal income.
This is different from residential landlord Finance Cost Relief.
That can create an important distinction between:
Borrowing personally to own a residential investment property personally
and
Borrowing personally and using qualifying funds in a property company.
The tax treatment of the interest may be very different.
We’ve previously explored this in:
Are You Missing Out on Qualifying Interest Relief?
This is an area where the exact structure and use of the borrowed money matter, so advice should be taken before arranging the finance rather than trying to restructure it afterwards.
Married Couples – Could Ownership Become Even More Important?
Yes.
Suppose a married couple jointly own rental property.
One spouse is an additional-rate taxpayer.
The other has significant unused basic-rate band.
From April 2027, property income could potentially face rates of:
22%, 42% or 47%
The difference between the property basic rate and property additional rate is therefore:
25 percentage points
That makes the allocation of property income between spouses potentially even more important.
As we explain in:
How Landlords Can Legally Reduce Tax by Changing the Split of Rental Income
married couples and civil partners are generally taxed 50:50 on jointly owned property unless the conditions for an alternative treatment are satisfied.
Where there is genuine unequal beneficial ownership, Form 17 may allow the rental income to be taxed according to the actual beneficial interests.
But remember:
Form 17 doesn’t change ownership.
The underlying beneficial ownership must already support the unequal income allocation.
A Simple Husband and Wife Example
Suppose a jointly owned property generates:
£30,000 annual rental profit
One spouse’s share would otherwise fall within the 47% property additional rate.
The other spouse has sufficient capacity for the relevant income to fall within the 22% property basic rate.
The difference between those rates is substantial.
That doesn’t mean every married couple should immediately change their property ownership.
Changing beneficial ownership can have implications for:
- Capital Gains Tax;
- SDLT;
- Inheritance Tax;
- mortgage arrangements;
- entitlement to future sale proceeds; and
- estate planning.
But it does mean ownership should be reviewed rather than simply accepted because that’s how the property has always been held.
Former Furnished Holiday Let Owners Should Review Their Position Too
The special Furnished Holiday Letting regime was abolished from 6 April 2025.
Former FHL properties are now generally within the normal property income regime.
For qualifying residential property, this can mean the residential finance-cost restriction is now relevant.
For married couples and civil partners, the normal rules governing jointly owned property and Form 17 may also need consideration.
The April 2027 tax increase therefore provides another reason for former FHL owners to review their structure.
Another 2027 Change – How Allowances and Reliefs Are Used
There is another change that could easily be overlooked.
From April 2027, the Income Tax calculation rules are being changed so that certain reliefs and allowances will generally only be applied against property, savings and dividend income after being applied against other income.
This matters because property income will now have its own higher rates.
For taxpayers with several sources of income, the interaction between property income and other reliefs may therefore become more complicated.
This is another reason why looking only at the headline 22%, 42% and 47% rates doesn’t tell the whole story.
Nine Things Landlords Should Consider Before April 2027
1. Calculate the impact of the new rates
Work out what the 22%, 42% or 47% property tax rates could mean for your actual portfolio.
2. Review your Finance Cost Relief
Calculate the benefit of the new 22% rate—but first establish whether all your finance costs qualify.
3. Check historic remortgages
If you’ve released equity from rental properties or refinanced them, check whether all the resulting interest qualifies for relief.
4. Check your MTD qualifying income
Remember:
The threshold is based on qualifying gross income, not rental profit.
5. Get ready for quarterly reporting
If you’ll enter MTD from April 2027, put compatible software and digital bookkeeping in place beforehand.
6. Review jointly owned property
If property is owned between spouses or civil partners, consider whether the existing beneficial ownership remains appropriate.
7. Compare personal and company ownership
This is particularly important before purchasing your next property.
Moving existing properties can create significant tax and refinancing costs, whereas deciding how to structure a new purchase gives you much more flexibility.
8. Review how future purchases are financed
Don’t look only at where the property is held.
Consider:
- who should borrow;
- what the borrowing will fund;
- whether interest qualifies for relief; and
- whether alternative financing structures should be considered.
9. Review the whole portfolio
Property tax planning shouldn’t be done one property at a time.
Consider:
Ownership + Borrowing + Tax Rates + MTD + Future Purchases + Exit Strategy
together.
Is Buy-to-Let Still Worth It?
Whenever landlord taxes increase, the inevitable headlines appear:
“Buy-to-let is dead.”
That’s far too simplistic.
Property investment decisions should be based on:
- rental yield;
- financing costs;
- capital growth potential;
- tax;
- risk;
- leverage;
- cash flow; and
- long-term objectives.
But tax is undeniably becoming a larger part of the calculation.
A highly geared individual landlord paying 47% on property income while receiving a 22% tax reduction for qualifying residential finance costs has a very different cash-flow profile from a debt-free basic-rate landlord.
A property company can have a different profile again.
There is no single structure that is right for everybody.
Bicknell Business Advisers’ Advice
The April 2027 changes shouldn’t be viewed simply as:
“Landlord tax is going up by 2%.”
The real picture is considerably more interesting.
Landlords need to consider:
22%, 42% and 47% property Income Tax
- 22% Finance Cost Relief
- Section 24
- whether remortgage interest actually qualifies
- Making Tax Digital and quarterly reporting
- Form 17 and beneficial ownership
- personal versus company ownership
- how future acquisitions should be financed
For some landlords, the answer may simply be to budget for slightly more tax and get ready for MTD.
For others—particularly landlords with larger, highly geared portfolios—April 2027 provides a very good reason to review the entire structure.
Don’t wait until April 2027 to start planning.
Some changes involving ownership, mortgages or company structures can take time and may themselves have tax consequences.
The sensible approach is:
CALCULATE → REVIEW → PLAN → IMPLEMENT
before the new rules take effect.
How We Can Help
At Bicknell Business Advisers, we specialise in advising landlords, property investors, developers and property companies.
We can help with:
- calculating the impact of the new 22%, 42% and 47% property tax rates;
- Finance Cost Relief and mortgage interest;
- reviewing remortgaging and interest deductibility;
- Making Tax Digital for Income Tax;
- Form 17 and jointly owned property;
- beneficial ownership and Declarations of Trust;
- personal versus limited-company ownership;
- property incorporation;
- qualifying loan interest relief;
- Capital Gains Tax;
- SDLT; and
- former Furnished Holiday Lettings.
If you own rental property personally, 2026/27 is the ideal time to review how the April 2027 changes could affect you.
A two-percentage-point tax increase may not sound dramatic.
But when combined with Section 24, substantial mortgage borrowing, MTD and a larger property portfolio, the financial and administrative impact can become significant.
About the Author
Steve Bicknell FCMA, CGMA is Managing Director of Bicknell Business Advisers Limited, specialising in property taxation, landlord tax planning, SDLT, Capital Gains Tax and company structures for property investors throughout the UK.
