If you’re a landlord, you could be paying more tax on your rental income from April 2027.
The government has announced plans to introduce new property income tax rates of 24%, 44% and 49%.
But here’s the important question: does that mean every landlord will pay more tax?
And what happens if you have a mortgage?
The answer depends on your circumstances. Let’s look at what’s changing, how the figures could affect your tax bill and what you should be thinking about now.
1. What is changing for landlords from April 2027?
Under the proposed changes, rental profits will be subject to separate property income tax rates.
For landlords in England, the comparison is:
| Tax band | Current rate | Proposed rate from April 2027 |
| Basic rate | 20% | 24% |
| Higher rate | 40% | 44% |
| Additional rate | 45% | 49% |
The changes are planned to take effect from 6 April 2027, subject to legislation.
These rates apply to taxable property income, not automatically to all your employment income or other earnings.
For example, if you’re employed and also receive rental income, your employment income will still be relevant when determining which tax bands apply to your rental profits.
That’s why looking at the headline rates alone does not tell you how much additional tax you might pay.
2. Example 1: A basic-rate Taxpayer receiving rental income
Let’s say you earn £30,000 a year from employment.
You also own a rental property generating £15,000 in taxable annual profit.
Assuming you receive the full Personal Allowance of £12,570 and have no other relevant tax adjustments, your taxable employment income is £17,430.
That means your £15,000 rental profit falls within the basic-rate band.
Here’s the comparison:
| Calculation | Current rules | Proposed April 2027 |
| Taxable rental profit | £15,000 | £15,000 |
| Tax rate | 20% | 24% |
| Income Tax on rental profit | £3,000 | £3,600 |
Additional annual tax: £600
So even though the landlord’s rental profit has not changed, their Income Tax attributable to that profit would increase by £600 a year.
That’s an additional £50 a month to budget for.
And for landlords already dealing with mortgage payments, repairs, insurance and other running costs, that additional amount matters.
3. Example 2: A landlord whose rental profits enter the higher-rate band
Now let’s consider someone earning £45,000 from employment and receiving £20,000 in taxable rental profit.
After deducting the Personal Allowance, their taxable employment income is £32,430.
That leaves £5,270 of the basic-rate band available.
So their rental profit is split between two tax bands.
Under the current rules:
- The first £5,270 is taxed at 20%.
- The remaining £14,730 is taxed at 40%.
Under the proposed April 2027 rules:
- The first £5,270 would be taxed at 24%.
- The remaining £14,730 would be taxed at 44%.
Let’s compare the figures.
| Rental profit calculation | Current rules | Proposed April 2027 |
| First £5,270 | £1,054 | £1,264.80 |
| Remaining £14,730 | £5,892 | £6,481.20 |
| Total Income Tax on rental profit | £6,946 | £7,746 |
Additional annual tax: £800
This landlord would pay £800 more tax on the same rental profit, before considering any residential mortgage finance cost tax reduction.
And this is why it’s important to consider your rental income alongside your employment income or other sources of taxable income.
4. What about landlords with mortgages?
There’s another proposed change that landlords with residential mortgages need to understand.
Under the current Section 24 rules, individual residential landlords generally cannot deduct qualifying mortgage interest directly when calculating their taxable rental profits.
Instead, qualifying finance costs may give rise to an Income Tax reduction, subject to restrictions.
Currently, that reduction is calculated at 20%.
From April 2027, the government proposes increasing the rate used to calculate qualifying residential mortgage finance cost relief to 24%.
For example, if you have £6,000 in qualifying mortgage interest:
| Mortgage finance cost relief | Current rules | Proposed April 2027 |
| Qualifying mortgage interest | £6,000 | £6,000 |
| Tax reduction rate | 20% | 24% |
| Potential tax reduction | £1,200 | £1,440 |
That’s a potential increase of £240 in the mortgage finance cost tax reduction.
However, there’s an important point.
The property income tax rates are increasing too.
So although the mortgage interest tax reduction may be higher, that does not automatically mean your overall tax bill will be lower.
The relief is also subject to statutory restrictions, and the full amount may not always be available in the same tax year.
If your rental income barely covers your mortgage payments, you may be wondering whether you still have a tax reporting obligation. We explore this in our article, My Rent Only Covered the Mortgage — Did I Still Need to Tell HMRC?
Related video: Rental Income Tax Is Changing from April 2027
In our accompanying YouTube video, we explain the proposed rates and work through practical examples of how they could affect landlords.
Video is live tomorrow
For further information about mortgage interest tax relief, see our related guidance on Section 24 and residential property finance costs.
5. Will every landlord pay more tax?
Not necessarily.
The impact depends on your individual circumstances.
For example, a landlord with taxable profits entirely within the basic-rate band may see an increase in tax on those profits.
A landlord whose rental profits fall partly into the higher-rate band could face a larger increase.
A landlord with qualifying mortgage interest may also benefit from an increased finance cost tax reduction.
And where there are losses, restricted finance costs or other adjustments, the calculation may be different again.
This is why landlords should not assume that the increase in the headline tax rates will translate directly into the same percentage increase in their final tax bill.
6. What should landlords do before April 2027?
Although the proposed changes are not due to take effect until April 2027, now is a sensible time to review your rental property finances.
Here are four areas worth considering.
Review your taxable rental profits
Start by checking your rental income and allowable expenses.
Are you claiming the expenses you’re entitled to? Are your records complete and accurate?
Understanding your taxable profit is the starting point for assessing the proposed changes.
Before calculating how the proposed tax changes could affect you, it’s important to understand which expenses are actually deductible. Read our article, Landlord Expenses: Just Because You Paid for It Doesn’t Mean It’s Tax Deductible.
Consider your other income
If you’re employed, self-employed or receiving pension income alongside your rental income, that can affect the tax bands applicable to your rental profits.
Looking at your rental income in isolation could give you a misleading picture.
Review your mortgage finance costs
If you have a residential mortgage, make sure you understand how much qualifying interest you’re paying and how Section 24 affects your tax calculation.
Remember, the Capital element of a repayment mortgage is not an allowable rental expense.
Look at your Cash flow
A property can generate taxable rental profits without leaving you with much cash after mortgage payments, repairs and other expenses.
An increase in tax could put further pressure on your cash flow.
Understanding the difference between taxable profit and cash flow can help you plan ahead.
Your rental property’s financial position can also change when the property is empty. Our article, My Rental Property Is Empty — Can I Still Claim the Expenses?, explains what landlords need to consider during vacant periods.
7. What if you haven’t declared rental income from previous years?
The proposed April 2027 changes do not remove your obligation to report rental income from earlier tax years.
If you’ve received rental income that should have been reported to HMRC, it’s important to address that separately.
Depending on your circumstances, you may need to consider making a disclosure through HMRC’s Let Property Campaign or another appropriate route.
If you’re unsure how to put things right, our guide, How Do You Tell HMRC About Undeclared Rental Income? (UK Guide), explains the disclosure process and what landlords need to consider.
Need help understanding how the changes could affect you?
At Grace Certified Accountants, we specialise in helping landlords understand their property tax obligations, including rental profits, allowable expenses, mortgage finance cost relief and undeclared rental income.
If you’re concerned about how the proposed April 2027 tax changes could affect you, you can book a 20-minute Initial Property Tax Consultation.
During your consultation, we’ll discuss:
- Your rental property circumstances and the tax concerns you would like to address.
- How your rental income, mortgage arrangements and other income may be relevant to your tax position.
- Whether the proposed changes raise issues that require further investigation or tax planning.
- The options available to you, including whether a detailed tax review would be appropriate.
You’ll leave the conversation with a clearer understanding of the issues to consider and the recommended next steps.
Consultation fee: £114 including VAT.
This is an initial consultation, not a detailed tax calculation or comprehensive tax planning review. Any further work will be separately agreed and quoted.
Book Your Initial Property Tax Consultation
Final thoughts
The proposed property income tax changes from April 2027 could increase the tax payable on rental profits for many landlords.
But the impact will not be the same for everyone.
The proposed increase in mortgage finance cost tax relief also needs to be considered alongside the higher property income tax rates.
The important thing is to understand your figures and plan ahead.
Grace Certified Accountants — If the numbers don’t add up, say Grace.