New property tax rates

Unincorporated landlords pay income tax on the profits of their property rental business. This is currently at the normal income tax rates. However, this is set to change from 6 April 2027 when property income will have its own tax rates. The bad news is that the new property tax rates will be two percentage points higher than the current income tax rates.

Current rates and new rates

For 2025/26 and 2026/27, unincorporated landlords pay income tax on their rental profits at 20% where it falls in the basic rate band, at 40% where it falls in the higher rate band and at 45% where it falls in the additional rate band.

For 2027/28 onwards, rental profits will be taxed at the new property tax rates which are, respectively 22%, 42% and 47%.

The new property tax rates only apply to landlords running an unincorporated property business; corporate landlords will continue to pay corporation tax on their profits.

Interest and finance costs

Where unincorporated landlords incur interest and finance costs, for example, mortgage interest, relief is given as a basic rate tax reduction.

When the new property tax rates come into effect from 6 April 2027, the rate used to calculate the tax reduction will be the property basic rate of 22%.

Allocation of personal allowance

The rules which determine the order in which income is taxed are also changing from 6 April 2027. Currently, allowances and reliefs are allocated so as to give the best result for the tax year.

For 2027/28 onwards, this will no longer be the case. The personal allowance will first be set against employment income, trading income and pension income (taxable at 20%, 40% and 45%) rather than property or savings income (taxable at 22%, 42% and 47%).

Mitigating the effects

Provisions contained in the Renters’ Rights Act 2025 will limit a landlord’s ability to increase rent to compensate for the tax rise. Where the landlord is increasing rents before these provisions bite, they may wish to factor in the forthcoming tax rises.

The cash basis is the default basis of accounts preparation for unincorporated landlords with rental income of less than £150,000. Under the cash basis, income is taxed when received and expenses relieved when paid.

Where possible, landlords should advance income, so it is received before 6 April 2027 to save 2% in tax. In contrast, they could consider delaying expenses until on or after 6 April 2027 so that relief is given at the new (higher) property rates.