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Tax on Rental Income Is Rising: 22%, 42% and 47% from April 2027

Income tax on UK rental income rises by two percentage points from 6 April 2027. Non-resident landlords are included. Mortgage interest relief, the Non-Resident Landlord deduction and worked examples.

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If you let a property in London, you will pay more tax on the rent from the 2027-28 tax year. Under the measure announced in the November 2025 Budget, separate income tax rates for property income apply from 6 April 2027, each two points higher than today's rates.

The new rates

| Band | Today | From 6 April 2027 | |---|---|---| | Basic rate | 20% | 22% | | Higher rate | 40% | 42% | | Additional rate | 45% | 47% |

Source: GOV.UK, Income Tax: changes to tax rates for property, savings and dividend income.

The rates apply in England, Wales and Northern Ireland. Scotland will follow a separate process under its own income tax powers. For London property, the new rates apply directly.

I live abroad. Does this affect me?

Yes. According to HMRC's technical note, the new rates apply to the UK rental income of non-resident landlords who file UK tax returns.

The deduction made by the letting agent under the Non-Resident Landlord Scheme also changes. It is currently made at the basic rate of 20%. From April 2027 it will be 22%. If HMRC has given written approval for rent to be paid gross, no deduction is made, but your filing obligation continues. For the full picture, see our UK tax guide for investors who own London property from Turkey.

Mortgage interest: relief at 22% too

On a let property held personally, mortgage interest is not deducted as an expense; it is given as a tax reduction. That reduction is currently calculated at 20%. From 2027-28 it will be calculated at the new property basic rate of 22%.

A simple example: £10,000 of mortgage interest gives a £2,000 tax reduction today and £2,200 from 2027-28.

How much difference? Examples

The figures below show only the effect of the rate change. Personal allowance and other income will change the result.

  • A higher-rate taxpayer with £30,000 of net rental profit: moving from 40% to 42% means £600 more tax a year.
  • A basic-rate taxpayer with £10,000 of net rental profit: moving from 20% to 22% means £200 more a year.
  • An additional-rate taxpayer with £100,000 of net rental profit: moving from 45% to 47% means £2,000 more a year.

The order of income changes as well

Under the technical note, income will now be placed in the bands in this order: first other income such as salary, then property income, then savings, and finally dividends. The personal allowance and other reliefs are applied first to income that is not property, savings or dividend income. For investors with other UK income, this order decides which band the rent falls into.

What about company structures?

The measure covers only income tax paid by individuals. Profits of a UK company (SPV) that holds the property are subject to corporation tax and are outside this change.

That does not mean everyone should move into a company. A company structure has its own costs: a flat 17% SDLT on residential purchases over £500,000, annual ATED on valuable dwellings held in a company, and dividend tax when profits are taken out. The right structure depends on the individual. Our UK SPV property purchase guide and holding structures for family companies compare the options.

What has not changed

  • Capital gains tax rates on sale are unchanged by this measure: 18% and 24%. Non-UK residents must report the sale of UK property to HMRC within 60 days of completion, even if no tax is due.
  • The annual CGT exempt amount for 2026-27 is £3,000.

Our recommendation

Update your yield model with 2027 rates now. A property showing a 4% gross yield on paper arrives at a very different net figure after service charge, management, voids and higher tax. Fill in the net yield table in our gross vs net rental yield guide using the new rates. Work with a UK tax adviser on structure. Through Private Office we can coordinate tax and accounting on your behalf.

Sources

This article is for general information only and is not tax advice. Information is correct as of 17 October 2026.

Expert Q&A

Frequently Asked Questions

When does tax on rental income go up?
On 6 April 2027, at the start of the 2027-28 tax year. The rates will be 22%, 42% and 47%.
Are non-resident landlords affected?
Yes. The new rates apply to UK rental income. The deduction under the Non-Resident Landlord Scheme also rises from 20% to 22%.
Is mortgage interest relief changing?
The method stays the same but the rate rises from 20% to 22%. For £10,000 of interest a year, the relief rises from £2,000 to £2,200.
Are properties held in a company affected?
The measure covers income tax for individuals. A UK company's rental profit is subject to corporation tax and is not directly within this change. Dividend tax on profits taken out of the company needs to be considered separately.
Does it apply to property in Scotland?
Not directly. The measure applies in England, Wales and Northern Ireland. Scotland will set its own rates. ---

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