Landlord Tax 2026/27: Rates, Reliefs and the April 2027 Rise

If you let property in your own name, the tax on your rent goes up in April 2027. This guide shows what you pay now, which reliefs still cut the bill, and what the rise costs in cash.

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:

• Basic rate: 22% (vs the general basic rate of 20%)
• Higher rate: 42% (vs 40%)
• Additional rate: 47% (vs 45%)

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 the 2015 Budget and phased in through 2020.

Below: the 2026/27 rates in force now, what the April 2027 changes mean in cash terms, and 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:

• Personal allowance: £12,570 (unchanged)
• Basic rate band: £12,571 – £50,270: taxed at 20%
• Higher rate band: £50,271 – £125,140: taxed at 40%
• Additional rate: over £125,140: taxed at 45%

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%). Which rates you pay depends on where you live, not where the property is: Scottish rates apply to Scottish taxpayers.

Wales currently mirrors England’s rates.

The rate is set by your income; the bill also depends on the costs you can prove. From £7.99 a month, LetCompliance records the rent and every cost against its property as the year runs, with bank statements imported from a CSV, and sends your Making Tax Digital updates to HMRC from the same records. LetCompliance is recognised by HMRC for Making Tax Digital, for UK property income. Get started

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:

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 basic-rate landlord with £20,000 of rental profit and no mortgage:

• 2026/27: £20,000 × 20% = £4,000 tax (basic rate portion)
• 2027/28: £20,000 × 22% = £4,400 tax
• Difference: +£400 per year

For a higher-rate landlord with £40,000 of profit, all of it taxed at the higher rate:

• 2026/27: £40,000 × 40% = £16,000
• 2027/28: £40,000 × 42% = £16,800
• Difference: +£800 per year

National Insurance is not payable on property income (unlike self-employment), and that remains the case in 2027/28.

Section 24: the mortgage interest tax credit

For individual landlords, mortgage interest relief was restricted by Section 24 of the Finance (No. 2) Act 2015. Since April 2020 you cannot deduct mortgage interest as an expense. Instead you receive a basic-rate tax credit: 20% (22% from 2027/28) of the lowest of your finance costs, your property profits and your adjusted total income.

How it works:

1. 1Calculate rental profit before deducting mortgage interest → this becomes your rental profit for tax
2. 2Calculate mortgage interest paid in the tax year
3. 3Your tax due = rental profit × your marginal rate
4. 4Less a tax credit of 20% (22% from 2027/28) × the lowest of your finance costs, your rental profit and your adjusted total income

Worked example: higher-rate landlord in 2026/27:

• Gross rent: £24,000
• Non-finance expenses: £4,000
• Mortgage interest: £8,000
• Rental profit for tax purposes: £24,000 − £4,000 = £20,000
• Tax on rental profit: £20,000 × 40% = £8,000
• Less mortgage interest tax credit: £8,000 × 20% = £1,600
• Net tax on rental income: £6,400

In the same example under the old (pre-Section 24) regime, the £8,000 mortgage interest would have been fully deductible, giving:

• Rental profit £12,000 × 40% = £4,800

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%.

Section 24 stays, and its credit moves with the new rates. From 2027/28 the credit rises from 20% to 22%, in line with the new property basic rate. So a higher-rate landlord’s marginal tax on rent goes from 40% to 42% and the credit from 20% to 22%: the gap between them stays at 20 percentage points.

Replacement of domestic items relief

Since 6 April 2016, landlords letting furnished or part-furnished residential property can claim Replacement of Domestic Items relief for the actual cost of replacing:

• Movable furniture (beds, sofas, tables, chairs)
• Furnishings (curtains, carpets, floor coverings)
• Household appliances (fridge, cooker, washing machine, TV)
• Kitchenware (crockery, cutlery)

Rules:

• First-time provision is not claimable: only replacement of existing items
• Cost of an equivalent replacement: if you upgrade (£300 fridge → £800 fridge), only £300 is deductible
• Less any proceeds from selling the old item
• Claimed in the tax year the replacement is bought, not depreciated
• Only applies to items provided for tenant use, not landlord-owned things kept elsewhere

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, such as kitchen units, integrated appliances (if built-in and part of the fitted kitchen), boilers and bathroom suites. Replacing one of these like for like is normally a repair you can deduct as an expense. Upgrading it to something better is an improvement, which is capital.

Property allowance

Every individual gets a £1,000 property allowance per tax year. Options:

• Total property income under £1,000 → you don’t need to declare it. No tax return required.
• Total property income over £1,000, low expenses → claim the £1,000 allowance instead of actual expenses. Simpler.
• Total property income over £1,000, high expenses → claim actual expenses (standard route). You cannot use both.

The allowance also covers occasional rental. A room rented on Airbnb three weekends a year, for example, is likely to bring in under £1,000 and need 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 and you don’t need to declare it. Over £7,500, you can either:

• Claim rent-a-room: pay tax on the excess over £7,500 with no expense deductions
• Ordinary property income route: pay tax on gross rent minus actual expenses, whichever gives a lower tax bill

For most rent-a-room landlords, the £7,500 allowance is more generous than actual expenses, so it wins.

The £7,500 rent-a-room exemption doesn’t change in 2027, but income above it is taxed at the new property rates (22%/42%/47%).

Mileage: HMRC simplified rates

Landlords running property visits from a personal car can claim mileage at the same rates as employees and self-employed:

• First 10,000 business miles per tax year: 55p per mile (45p for tax years before 2026-27)
• Above 10,000 miles: 25p per mile

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.

Practical: LetCompliance’s mileage log records each trip against a property with the date, miles and purpose, applies the per-mile rate for the tax year, and downloads as a CSV for your records or your accountant.

What died: wear and tear allowance

Before 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:

• Basic-rate band gains: 18%
• Higher/additional-rate band gains: 24%

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

1. 1Model the 2027 rise now. A basic-rate landlord with £15k rental profit and no finance costs will pay an extra £300 a year from April 2027. A higher-rate landlord with £30k profit and no finance costs pays an extra £600. Adjust your cash flow expectations.
2. 2Claim every relief you are entitled to. Section 24 (automatic), Replacement of Domestic Items (needs claim), mileage (needs log), rent-a-room (if it applies).
3. 3Keep records that will survive an enquiry. Receipts for every expense, the mileage log, tenancy agreements and rent statements. LetCompliance keeps them with the let they belong to: costs and receipts by property, the rent ledger, a profit and loss for each property and an SA105 tax pack at the year end. If you're in Making Tax Digital, it sends your quarterly updates to HMRC too: LetCompliance is recognised by HMRC for UK property income. Its Section 24 calculator shows what the 2027 rise does to your own figures, and plans start at £7.99 a month.
4. 4Think about incorporation. Corporate landlords pay Corporation Tax (19% to 25% depending on profit) rather than the new 22%/42%/47% rates. Section 24 does not apply to companies. Incorporation is not free: there are SDLT and CGT triggers on transfer. But the sums are worth modelling if you have 4+ mortgaged properties and are a higher-rate taxpayer.

Sources

• HMRC: Property income manual (PIM)
• GOV.UK: Work out your rental income when you let property
• HMRC: Replacement of domestic items relief
• HMRC: Rent a room scheme