Why Landlords Could Pay More Tax on Rental Income from April 2027

What Is Changing to Tax on Rental Income from April 2027?

Currently, most individual landlords pay Income Tax on their taxable rental profits at the same rates that apply to employment income.

From April 2027, rental income will have its own set of tax rates.

Under Section 7 of the Finance Act 2026, the new property income tax rates for the 2027/28 tax year are:

These rates apply to taxable property profits rather than the total rent collected.

The new rates will apply in England and Northern Ireland, with the published UK framework also covering Wales subject to its devolved tax arrangements. Scottish property income remains subject to distinct Scottish tax provisions.

The important distinction is that rental income will now be taxed differently from employment earnings. An employee who also owns a rental property could therefore face different tax rates on their salary and their rental profits.

Landlords who want to better understand their existing tax obligations can explore our Landlord Tax services, which cover rental income reporting, allowable expenses and tax compliance.

Source: HMRC – Changes to Tax Rates for Property, Savings and Dividend Income

How Much More Tax Could Landlords Pay?

A two-percentage-point increase might seem relatively small. However, the financial impact becomes clearer when applied to annual rental profits.

Consider a landlord earning £20,000 in taxable rental profits, with their other income placing all those profits within the higher-rate tax band.

Example: £20,000 in Taxable Rental Profits

Suppose a landlord earns £20,000 in taxable rental profits, all falling within the higher-rate tax band.

• 2026/27: £20,000 × 40% = £8,000 tax
• 2027/28: £20,000 × 42% = £8,400 tax
• Additional annual tax: £400

This means the landlord could pay £400 more in tax each year, even if their rental profits remain unchanged.

Note: This example assumes no mortgage interest tax relief or other tax adjustments apply.

For landlords with larger portfolios, the extra tax could be considerably higher. The actual increase will depend on a landlord’s total taxable income, available allowances and applicable reliefs.

Will Mortgage Interest Relief Change in April 2027?

Individual landlords with residential rental properties generally cannot deduct mortgage interest directly from their rental profits. Instead, they receive a basic-rate tax reduction on qualifying finance costs, subject to certain limits.

From April 2027, the finance cost tax reduction rate will increase from 20% to 22%.

For example, a landlord with £8,000 in qualifying mortgage interest could receive:

• Current tax reduction at 20%: £1,600
• New tax reduction at 22%: £1,760
• Additional tax reduction: £160

This assumes the full amount qualifies for relief. Although the increased reduction may offset some of the additional tax on rental income, it will not necessarily eliminate the impact of the higher rates.

Source: HM Treasury – Changes to Tax Rates for Property, Savings and Dividend Income

Which Landlords Will Be Affected by the New Tax Rates?

The new property income tax rates will primarily affect individuals receiving taxable income from property, including:

• Buy-to-let landlords earning rental profits from residential properties.
• Commercial property landlords receiving taxable rent from shops, offices or other premises.
• Landlords with multiple properties whose combined profits may fall within higher tax bands.
• Individuals with additional income from employment, pensions or self-employment.
• Non-resident landlords receiving taxable income from UK properties.

Not every landlord will pay more tax. Those whose rental profits are covered by available allowances may have little or no additional liability.

Can Landlords Still Claim Expenses Against Rental Income?

Yes. Landlords can continue to deduct qualifying expenses incurred in running their rental property business.

Common allowable expenses include:

• Letting agent and property management fees.
• Property insurance.
• Routine repairs and maintenance.
• Accountancy and qualifying professional fees.
• Advertising costs for finding tenants.
• Council Tax and utility bills paid by the landlord.
• Certain legal expenses relating to property letting.

However, capital improvements are generally treated differently from repairs, while residential mortgage interest remains subject to separate tax relief rules.

Maintaining accurate records of allowable expenses can help landlords calculate their taxable profits correctly and avoid paying unnecessary tax on rental income. Our bookkeeping services can help keep rental income and expenditure organised throughout the year. 

Source: GOV.UK – Renting Out Your Property: Paying Tax

Another April 2027 Change: Making Tax Digital for Landlords

Alongside the new property tax rates, Making Tax Digital (MTD) for Income Tax will become mandatory for more landlords from 6 April 2027.

Landlords and self-employed individuals with combined qualifying gross income exceeding £30,000 will generally be required to comply, unless exempt. The threshold for the April 2027 phase is normally assessed using income from the 2025/26 tax year.

Affected landlords will need to:

• Maintain digital records of rental income and expenses.
• Submit quarterly updates to HMRC using compatible software.
• Complete their annual Income Tax reporting digitally.

The threshold is based on gross qualifying income before expenses, not taxable profits. For example, a landlord receiving £35,000 in annual rent could fall within MTD even if allowable expenses reduce their taxable profit to £20,000.

For a more detailed explanation of the reporting process, read our step-by-step guide to Making Tax Digital for UK landlords.

How Can Landlords Prepare for the April 2027 Tax Changes?

Waiting until the 2027/28 tax return is due could make it harder to manage an unexpected liability.

Landlords should consider reviewing their current rental position before the new rates take effect.

Estimate your future rental tax liability

Calculate your expected rental profits and consider how they interact with other taxable income to understand how the new tax on rental income could affect your liability from April 2027.

Review your allowable expenses

Check that eligible costs have been recorded correctly. Missing expenses could result in paying more tax than necessary.

Reassess your property’s cash flow

Rental profits and available cash are not always the same, particularly where mortgage repayments are involved. Budgeting for additional tax can help avoid financial pressure.

Consider your property ownership structure

Some landlords may benefit from reviewing whether personal ownership remains suitable. However, restructuring should only be considered after assessing the associated tax costs.

Prepare for Making Tax Digital

If you fall within the MTD requirements, ensure your bookkeeping software and record-keeping processes are suitable for digital reporting before April 2027. Our Making Tax Digital services can help landlords prepare for the transition and manage their ongoing reporting obligations.

Planning ahead will not remove the new tax rates, but it can help landlords understand their financial position and avoid preventable tax complications.

Are You Prepared for Higher Rental Income Tax?

From 6 April 2027, tax on rental income could increase for many landlords, with new property income tax rates of 22%, 42% and 47%.

While the increase may appear modest, it could reduce the annual income landlords retain from their properties. Those with mortgage borrowing or several rental properties may need to pay particular attention to their tax calculations.

At Artifin Accountants, we help landlords manage their rental income tax obligations, claim eligible expenses and prepare for changes to HMRC reporting requirements.

If you are unsure how the new tax rules could affect your rental income, speak to our team to understand your tax position and find out how our property tax and accounting services can help you prepare for April 2027.