2027 Property Tax Changes: What Every Landlord Needs to Know

Written by James Veal

From April 2027, it will be possible to lose money on a rental property in a given year and still receive a tax bill telling you that you made a profit. That’s not a drafting error — it’s the predictable result of two policies landing on top of each other as part of the wider 2027 property tax changes. If you’re a landlord, the time to plan around this is now, not in March 2027.

Here’s what’s actually happening, what it means for your numbers, and what to do about it.

How We Got Here: Section 24

Since 2020, Section 24 has stopped landlords deducting mortgage interest as a business cost. The UK taxes every other business on profit — income minus costs. A shop deducts its rent. A haulier deducts fuel. A landlord used to deduct mortgage interest the same way.

Not anymore. Take £1,000 in rent where £500 goes straight to the bank as mortgage interest. The real income is £500. But HMRC taxes the full £1,000, and gives a 20% tax credit on the interest instead of a deduction. For a higher-rate taxpayer, that’s a meaningful gap between what they actually receive and what HMRC taxes.

What’s New in the 2027 Property Tax Changes

From 6 April 2027, rental income leaves the normal income tax bands (20% / 40% / 45%) behind and moves onto its own, higher schedule: 22% / 42% / 47%. The Autumn Budget confirmed this in November 2025, and it is now law under the Finance Act 2026.

There’s one small offset: the Section 24 mortgage interest tax credit rises in line, from 20% to 22%. It doesn’t come close to cancelling out the 2-point rate rise, but it’s worth knowing it’s there.

A second, less-publicised change lands the same day: from 2027, HMRC applies the Personal Allowance to earnings, self-employment income and pensions first, before anything is left over for rental income. Previously HMRC allocated it however minimised your bill. That ordering rule matters more than it sounds — see the worked examples below.

Worked Examples: The Same Loss-Making Property, Four Tax Bills

The clearest way to see how the 2027 property tax changes play out is to hold the property itself constant and change only the landlord’s other income. Here, we model one rental property four different ways.

The property (same in every scenario):

• Rental income (turnover): £24,000/year
• Mortgage interest: £26,000/year (a genuinely high-interest, heavily leveraged year)
• Real cash result: a £2,000 loss

The rules applied (2027/28, as currently set in law for England, Wales and Northern Ireland):

• Personal Allowance: £12,570, tapered away entirely once income passes £125,140
• Standard earned-income rates: 20% / 40% / 45%
• New property income rates: 22% / 42% / 47%
• Section 24 finance-cost credit: 22% of mortgage interest, capped at the tax due on the property (any excess carries forward)

Scenario	Other income	Cash result on the property	Tax generated by the property
A — No other income	£0	−£2,000	£0
B — Basic-rate earner	£30,000 salary	−£2,000	£306
C — Higher-rate earner	£70,000 salary	−£2,000	£4,360
D — Additional-rate earner	£150,000 salary	−£2,000	£5,560

Why the Tax Bill Varies So Much

Same property. Same loss. A tax bill anywhere from nothing to over £5,500, depending entirely on what else the landlord earns.

Why the gap is so wide: the finance-cost credit sits fixed at 22% regardless of income. But the tax HMRC charges on the rental turnover rises with your marginal rate — 22%, then 42%, then 47%. At pure basic rate, the charge and the credit are the same percentage, so they roughly cancel out (Scenario A). Every band above that opens a widening gap between what HMRC taxes and what it credits back — and that gap is what turns a genuine loss into a genuine tax bill. This isn’t a flat problem across all landlords; it scales sharply with total income.

These are simplified illustrations, not a tax return — they don’t account for multiple properties, other allowances, or prior-year carry-forward relief. For your own figures, see how a higher bill could affect your payments on account, or get in touch for a proper calculation.

What This Means If You’re a Scottish Landlord

Scotland holds devolved control over income tax on rental income, so the 2027 property tax changes don’t apply north of the border automatically. The 22% / 42% / 47% property rates above apply to England, Wales and Northern Ireland only — the Scottish Government still has to decide separately whether to mirror the increase for Scottish taxpayers, and it hasn’t confirmed that yet.

The Personal Allowance taper and the new mandatory ordering rule, however, fall under reserved UK-wide rules — they apply to Scottish taxpayers exactly as set out above, regardless of what Scotland decides on the property rate itself. For the full picture on how Scottish income tax bands interact with the rest of this, see our guide to Scottish tax rates for 2026/27.

What Landlords Can Do Before April 2027

Whatever you decide, here’s how to get ahead of the 2027 property tax changes before they land:

• Model your real numbers now. Work out your effective tax rate on actual cash profit (after mortgage payments), not just turnover — for a normal year and a high-interest year.
• Revisit incorporation. Companies pay corporation tax rather than income tax, and mortgage interest is a genuine deductible cost for a company. It won’t suit everyone, and moving property into a company has its own costs — read our comparison of sole trader vs limited company as a starting point.
• Check joint ownership and allowances. If you own with a spouse or partner, split income to use both people’s basic-rate bands before the new property rates apply.
• Look at pension contributions. Contributions that bring total income down can keep rental profit within the 22% band rather than tipping into 42%.
• Time cash-basis income where you can. HMRC taxes any rent you receive before 6 April 2027 at current rates; rent you receive on or after that date falls under the new ones.
• Check your Making Tax Digital position. Property income counts towards the MTD threshold — if you’re not already reporting quarterly, see our MTD for Income Tax guide.
• Get advice before you decide anything major. Incorporation and restructuring carry their own tax consequences (SDLT, CGT) that can outweigh the benefit without proper advice.

Frequently Asked Questions

When exactly do the 2027 property tax changes take effect?

From 6 April 2027. HMRC taxes rent received before that date under current rates; rent received on or after 6 April 2027 falls under the new 22% / 42% / 47% property income rates.

Do the 2027 property tax changes apply to Scottish landlords?

Not automatically. Scotland holds devolved control over property income tax rates, so the Scottish Government has to decide separately whether to mirror the rUK 22% / 42% / 47% rates. The Personal Allowance taper and the new ordering rule fall under reserved UK-wide rules and apply to Scottish taxpayers either way.

Can I really owe tax on a rental property that made a loss?

Yes, for leveraged landlords. Because Section 24 taxes rental turnover rather than profit, and the rules cap the mortgage interest credit at a flat 22%, a landlord with high other income can be cashflow-negative on a property and still owe tax on it, as the worked examples above show.

Should I move my rental properties into a limited company before 2027?

It can help, since companies deduct mortgage interest as a normal cost and pay corporation tax rather than income tax — but incorporation triggers its own Stamp Duty and Capital Gains Tax consequences that can outweigh the benefit. This needs individual advice, not a blanket answer.

The Bottom Line

Whatever you think about the fairness argument, the practical reality for anyone actively managing tenants, repairs and compliance is the same: the 2027 property tax changes are squeezing returns from both directions at once. Modelling your numbers properly before April 2027 — rather than discovering the effect on your 2028 tax return — is the difference between planning for this and reacting to it.

Sources: HM Treasury, Autumn Budget 2025; Finance Act 2026.

This is general information, not personalised tax advice. Every landlord’s position is different — get in touch before making structural changes to how you hold property.