Section 24 and income
Landlords face 22%, 42% and 47% tax from April 2027: what to do now
From April 2027 rental profits are taxed at 22%, 42% and 47%. How the new property rates work, what they cost, and the planning to do before they start.
From 6 April 2027, rental profits are taxed at their own rates of income tax. In England, Wales and Northern Ireland, landlords will pay 22%, 42% and 47% on property income instead of 20%, 40% and 45%. The Section 24 credit on mortgage interest rises to 22% at the same time.
The change is now law. It is in sections 6 and 7 of the Finance Act 2026, which received Royal Assent on 18 March 2026. So the question for portfolio landlords is no longer whether it happens, but what to do in the six months before it does.
This article explains how the new rates work, what they cost at different income levels, and the planning worth doing now.
What changes, in one table
| 2026/27 (now) | 2027/28 onwards | |
|---|---|---|
| Rental profit in the basic rate band | 20% | 22% |
| Rental profit in the higher rate band | 40% | 42% |
| Rental profit in the additional rate band | 45% | 47% |
| Section 24 credit on finance costs | 20% | 22% |
| Non-resident landlord scheme withholding | 20% | 22% |
| Discretionary trusts on property income | 45% | 47% |
| Salary, pension and trading income | 20/40/45% | 20/40/45% (unchanged) |
The bands themselves don't change. The personal allowance stays at £12,570 and the basic rate band at £37,700, frozen to 2030/31.
What counts as property income
The new rates apply to "property income", defined in new section 17A of the Income Tax Act 2007. In practice that means profits of a UK or overseas property business, together with a few smaller items such as post-cessation receipts and some wayleave income. Rent from a buy-to-let portfolio, held personally or through a partnership, is squarely within it.
The rates are for individuals, trustees and estates. Companies are not affected. A property company keeps paying corporation tax on its rental profits, at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between.
The ordering rule matters as much as the rates
The headline is two percentage points. The detail that catches people out is the new ordering rule.
From 2027/28, property income is treated as sitting above your other non-savings income, such as salary, pension or self-employed profits, and immediately below any savings and dividend income. Reliefs and allowances are set against the other income first.
So if you have a pension of £15,000, your personal allowance is used against the pension. All of your rental profit is then taxable, starting at 22%. Before, it made no difference which income the allowance covered, because both were taxed at the same rates. Now it does.
What it costs: three illustrations
These are illustrations only, not client examples. Each landlord lives in England and has no savings or dividend income.
| Landlord | Other income | Rental profit before interest | Mortgage interest | Tax on rents 2026/27 | Tax on rents 2027/28 | Increase |
|---|---|---|---|---|---|---|
| Basic rate | £20,000 | £20,000 | £5,000 | £3,000 | £3,300 | £300 |
| Higher rate | £60,000 | £30,000 | £10,000 | £10,000 | £10,400 | £400 |
| Additional rate | £150,000 | £50,000 | £20,000 | £18,500 | £19,100 | £600 |
Take the higher-rate landlord. In 2026/27 the £30,000 is taxed at 40% (£12,000), less a 20% credit on £10,000 of interest (£2,000). In 2027/28 it is taxed at 42% (£12,600), less a 22% credit (£2,200).
Because the credit rises with the basic rate, the increase works out at roughly 2% of profit after interest. That's the good news. The less good news is that Section 24 still taxes the interest itself at 42% or 47% and only gives 22% back. The gap stays at 20 points for higher-rate landlords and widens to 25 points for additional-rate landlords. Our Section 24 calculator shows the figures for your own portfolio.
Who should look hardest at this
- Landlords near £100,000 of income. Section 24 adds the interest back into your taxable income, and the personal allowance is withdrawn by £1 for every £2 above £100,000. Combined with the new rates, the effective rate in that band is severe.
- Additional-rate landlords with mortgages. The 25-point gap between the tax on interest and the credit is the widest anywhere in the system.
- Pensioners with modest pensions and large rental incomes. The ordering rule moves the allowance onto the pension, so more of the rent is taxed.
- Non-resident landlords. Withholding under the non-resident landlord scheme rises to 22%. See non-resident landlords.
- Trustees of discretionary trusts holding let property. The trust rate on property income becomes 47%.
Scotland and Wales set their own rates
The Finance Act 2026 lets the Scottish Parliament and the Senedd set their own property income rates. At the time of writing we have not seen Scottish or Welsh property rates confirmed for 2027/28, so we don't quote figures here. If you are a Scottish or Welsh taxpayer, plan on the basis that a change is coming and revisit the numbers once the rates are published.
Scottish taxpayers already pay different rates on non-savings income in 2026/27: 19% starter, 20% basic, 21% intermediate, 42% higher, 45% advanced and 48% top. Rental profits are currently taxed at those rates.
What to do before April 2027
The rate change on its own rarely justifies a restructure. It does change the arithmetic for decisions you may already be weighing. A sensible checklist:
- Model 2027/28 now. Run your actual figures through both years. The ordering rule means two landlords with the same rent can see very different increases.
- Revisit incorporation. A company doesn't pay the new rates and deducts interest in full. Whether that outweighs capital gains tax, SDLT and refinancing costs depends on the portfolio. Our worked example shows how to test it.
- Check who owns what. If a spouse or civil partner pays tax at a lower rate, moving beneficial ownership and filing Form 17 within 60 days can shift income into their bands. The rate rise makes unused basic rate bands slightly more valuable.
- Look at the £100,000 edge. Pension contributions reduce adjusted net income, but relief is limited to your relevant UK earnings, and rental income doesn't count as earnings. Landlords with a salary or trading income have more room than those who live on rent alone.
- Time discretionary spending. A planned refurbishment of a let property deducted in 2027/28 saves tax at the new rates. It's a small gain, so don't let it delay necessary repairs.
- Use losses. Brought-forward property losses still reduce future property income, so their value goes up slightly.
- Think about growth. If you're buying again, compare buying personally with buying through a company on 2027/28 figures, not today's.
Common misconceptions
- "Section 24 relief stays at 20%." It doesn't. The credit is calculated at the property basic rate, so it rises to 22% from 2027/28.
- "My company will pay 22% too." No. Companies pay corporation tax, not income tax.
- "It's only 2%, so it doesn't matter." The rate is only part of it. The ordering rule and Section 24 can move income across bands, and that is where the real cost often sits.
- "Making Tax Digital is a separate issue." It is, but the timing overlaps. Landlords with qualifying income over £30,000 in 2025/26 join MTD from April 2027. See our article on Making Tax Digital for landlords.
How we help
We review your portfolio on both years' rules and set out the options with the numbers attached. Every plan is reviewed by a Chartered Tax Adviser, we work on fixed fees agreed upfront, and we respond the same working day. If you're weighing a decision before April 2027, the earlier we look at it, the more options there are.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
