On 26 November 2025, the Chancellor announced a 2 percentage point rise in the tax rates that apply to property income, effective from 6 April 2027. From 2027/28, income tax on rent will be:
Property income now has its own income tax rates, separate from the rates applied to wages, self-employment and pensions. That is the biggest single change to landlord taxation since the Section 24 mortgage interest restriction announced in 2015 Budget and phased in through 2020.
This guide covers the current 2026/27 landlord tax framework — what you pay, what reliefs still exist, and what the April 2027 changes will mean in cash terms. It also walks through the reliefs that reduce your bill: Section 24 (mortgage interest tax credit), replacement of domestic items, wear and tear (long dead), mileage, rent-a-room, and the property allowance.
Not tax advice. Rates, reliefs and Budget policy change every year. Take advice on your own portfolio.
2026/27 landlord tax rates (in force now)
For the current tax year (6 April 2026 – 5 April 2027), rental income is added to your other income and taxed at your marginal income tax rate:
The personal allowance is tapered from £100,000 income at £1 lost for every £2 over the threshold — so effectively 60% marginal rate between £100,000 and £125,140. This still applies in 2026/27.
Scotland has different rates and bands (Scottish Rate of Income Tax), including an intermediate rate (21%) and top rate (48%). Rental profits from Scottish property are taxed at Scottish rates.
Wales currently mirrors England’s rates.
What changes from 6 April 2027
From 2027/28, property income is taxed at new rental income rates — 2 percentage points above the general rates:
| Band | General rate | Property rate | Difference |
|---|---|---|---|
| Basic | 20% | 22% | +2pp |
| Higher | 40% | 42% | +2pp |
| Additional | 45% | 47% | +2pp |
The Chancellor’s justification was that unearned property income should be taxed at a slight premium to earned wage income. In cash terms for a landlord grossing £20,000 rent with no mortgage:
For a higher-rate landlord grossing £40,000 net-of-costs:
National Insurance is not payable on property income (unlike self-employment) — that remains the case in 2027/28.
Section 24 — the mortgage interest tax credit
Section 24 of Finance (No. 2) Act 2015 restricted mortgage interest relief for individual landlords. Since April 2020 you cannot deduct mortgage interest as an expense. Instead you receive a 20% basic-rate tax credit on your finance costs.
How it works:
Worked example — higher-rate landlord in 2026/27:
In the same example under the old (pre-Section 24) regime, the £8,000 mortgage interest would have been fully deductible, giving:
So Section 24 costs this landlord £1,600 per year vs the old regime. For a heavily-leveraged higher-rate landlord, Section 24 can push the effective rate on real cash profit above 100% — which is why so many BTL landlords have incorporated or exited since 2020.
Section 24 is unchanged in the 2025 Budget. The 2027 rate rise stacks on top of it — the tax credit stays at 20% (basic rate), so the higher-rate landlord’s marginal tax on rent goes from 40% to 42%, but the credit stays at 20%. The gap widens.
Replacement of domestic items relief
Since 6 April 2016, landlords letting fully-furnished residential property can claim Replacement of Domestic Items relief for the actual cost of replacing:
Rules:
This is one of the more valuable reliefs and is often under-claimed. Keep receipts and photograph the old and new items where possible.
Does not apply: fixtures that are part of the building fabric — kitchen units, integrated appliances (if built-in and part of the fitted kitchen), boilers, bathroom suites. These are treated as capital expenditure and depreciated (well, wear-and-tear allowance died in 2016 — see below).
Property allowance
Every individual gets a £1,000 property allowance per tax year. Options:
The allowance also covers occasional rental — a room rented on Airbnb three weekends a year, for example, is likely under £1,000 and requires no declaration.
Not the same as rent-a-room relief (see next section) — the property allowance is for individuals renting out a separate property.
Rent-a-room relief
Landlords who let a furnished room in their own main residence can claim rent-a-room relief of £7,500 per year (£3,750 if two people jointly own).
If your rent-a-room income is under £7,500, it is completely tax-free — no declaration needed. Over £7,500, you can either:
For most rent-a-room landlords, the £7,500 allowance is more generous than actual expenses, so it wins.
Rent-a-room is unaffected by the 2027 rise — because it applies only to income above £7,500, and above that you pay at the new property rates (22%/42%/47%).
Mileage — 45p / 25p HMRC rates
Landlords running property visits from a personal car can claim mileage at the same rates as employees and self-employed:
Business miles include: property inspections, tenant visits, agent visits, hardware store trips for repairs, meetings with contractors. Commuting is not claimable (there is no commute in a rental business anyway).
You must keep a mileage log — date, purpose, from, to, mileage. HMRC can and does ask for it in enquiries. If your log is reconstructed from petrol receipts after a challenge, HMRC often disallows.
Practical: LetCompliance’s mileage log auto-suggests journeys from your property addresses and lets you tag each with a purpose. Exported for the MTD final declaration in the correct HMRC format.
What died: wear and tear allowance
Pre-April 2016 there was a 10% wear-and-tear allowance on furnished lettings — a flat 10% deduction from rent to cover future replacements. It was withdrawn from 6 April 2016 and replaced by Replacement of Domestic Items relief (above). Some older guidance still references it. It is dead.
Capital Gains Tax on sale
If you sell a rental property at a gain, CGT applies. Rates in 2026/27:
The 24% higher rate was reduced from 28% in the March 2024 Budget. It has not been raised subsequently.
Annual exempt amount: £3,000 in 2026/27 (down from £12,300 in 2022/23).
For a full guide see Selling a Buy-to-Let 2026.
Practical: what to do this year
Sources
Allowable vs Capital Repair Decision Tree
The single line HMRC actually draws between an allowable repair and a capital improvement, with 24 worked examples for UK landlords.
- 24 real repair scenarios classified
- Repair-vs-capital decision tree (1-page A4)
- Replacement-of-domestic-items relief explained
- Self Assessment line mapping for SA105
Frequently asked questions
What are UK landlord tax rates in 2026/27?
In 2026/27, property income is added to your other income and taxed at your marginal rate: 20% basic, 40% higher, 45% additional. The £12,570 personal allowance applies as normal (tapered above £100k income). From April 2027, dedicated property rates of 22% / 42% / 47% take effect — 2pp above the general rates.
Can I still deduct mortgage interest from rent?
No — Section 24 (Finance No. 2 Act 2015) removed mortgage interest as a deductible expense from April 2020 for individual landlords. Instead you receive a 20% basic-rate tax credit on your finance costs at the year-end calculation. Corporate landlords are not affected.
What is Replacement of Domestic Items relief?
A relief for the actual cost of replacing (not first-time providing) movable furniture, furnishings, household appliances and kitchenware in a fully-furnished rental. Cost of an equivalent replacement is deductible, less any proceeds from selling the old item. Claimed in the year of purchase, not depreciated.
How much is the property allowance?
£1,000 per individual per tax year. If your total gross property income is under £1,000 you don’t need to declare it. Above £1,000 you can either claim the allowance instead of actual expenses (simpler) or claim actual expenses (usually better for landlords with real costs). Not the same as rent-a-room relief.