From April 2027, the UK government introduces separate tax rates specifically for property income. This represents the most significant change to landlord taxation in decades and fundamentally alters the 2027 tax rates incorporation decision for property investors.

The new system means property income will face a 22% basic rate (instead of the current 20%), while corporation tax remains at 19% for profits up to £250,000. For many landlords, this creates a clear tax advantage for holding properties in a limited company structure.

What Are the New 2027 Property Tax Rates?

From 6 April 2027, property income will be subject to dedicated tax bands rather than following general income tax rates:

  • 22% basic rate on property income (replacing 20%)
  • 42% higher rate on property income (replacing 40%)
  • 47% additional rate on property income (replacing 45%)

These rates apply after the personal allowance (£12,570 in 2026/27) and stack on top of your other income. Crucially, these are separate from general income tax rates, which remain at 20%, 40%, and 45% for employment, pensions, and other income sources.

Meanwhile, corporation tax rates for 2027/28 are expected to remain at 19% for small profits (up to £250,000) and 25% for profits above this threshold.

22% Basic Rate vs Corporation Tax: The New Calculation

The 22% basic rate vs corporation tax comparison becomes crucial for landlords currently paying basic rate tax on rental income. Here's how the numbers work:

Example: Landlord with £30,000 annual rental profit

Personal ownership (from April 2027):

  • Property income tax: £30,000 × 22% = £6,600
  • After-tax income: £23,400

Limited company ownership:

  • Corporation tax: £30,000 × 19% = £5,700
  • Available for dividends: £24,300
  • Dividend tax (basic rate): £24,300 × 8.75% = £2,126
  • Total after-tax: £22,174

In this example, personal ownership actually provides £1,226 more after-tax income despite the higher property tax rate, due to dividend tax on company profits. However, this gap narrows significantly compared to current rules.

Higher Rate Taxpayers: Clear Incorporation Advantage

For higher rate taxpayers, the 2027 tax rates incorporation decision becomes much clearer. The 42% property income rate versus 19% corporation tax creates substantial savings potential.

Example: Higher rate taxpayer with £50,000 rental profit

Personal ownership (from April 2027):

  • Property income tax: £50,000 × 42% = £21,000
  • After-tax income: £29,000

Limited company ownership:

  • Corporation tax: £50,000 × 19% = £9,500
  • Available for dividends: £40,500
  • Dividend tax (higher rate): £40,500 × 33.75% = £13,669
  • Total after-tax: £26,831

Even after dividend tax, the company structure saves £4,831 annually in this example. For larger portfolios, these savings multiply significantly.

Should You Incorporate Before 2027?

The question of whether to incorporate before 2027 depends on several factors beyond just the tax rate comparison:

Timing Considerations

Incorporating before April 2027 allows you to:

  • Transfer properties before the new rates take effect
  • Spread CGT liability over multiple tax years if needed
  • Establish company structures and banking relationships
  • Benefit from current 20% basic rate on any retained income

Capital Gains Tax Impact

Property transfers to a company trigger CGT at 18% (basic rate) or 24% (higher rate). With only a £3,000 annual exempt amount, significant gains could create substantial tax bills.

However, this one-time cost needs weighing against annual tax savings from 2027 onwards. For properties with modest gains but strong rental yields, incorporation often makes sense.

Alternative Structures and Strategies

Beyond simple incorporation, the 2027 changes open up other planning opportunities:

Mixed Ownership Structures

Some landlords might benefit from holding high-yielding properties in companies while keeping capital growth assets personally. This approach can optimise both income tax and CGT positions.

Spousal Transfers

For married couples, transferring properties to the spouse with lower overall income could help keep rental profits in the 22% rather than 42% bracket, though this is becoming less effective as the gap narrows.

Pension Contributions

Higher rate taxpayers can still obtain 40% tax relief on pension contributions, potentially reducing their overall rate from 42% to effectively 22% on property income used for pension funding.

Mortgage Interest and Section 24

The Section 24 mortgage interest restrictions remain in place after 2027, but their impact changes with the new rates.

For personal ownership, mortgage interest still gets only basic rate relief (20% in 2027), while the property income faces 22% or higher rates. This widens the effective penalty for leveraged personal property ownership.

Companies continue to get full mortgage interest deductions against their corporation tax liability, making the incorporation benefit even stronger for heavily mortgaged properties.

Administrative and Compliance Considerations

Before making the 2027 tax rates incorporation decision, consider the ongoing compliance burden:

  • Annual corporation tax returns and accounts filing
  • Quarterly MTD submissions for property income
  • Dividend paperwork and planning
  • Potential IR35 considerations for active property management

These costs and time commitments need factoring into your decision, particularly for smaller portfolios where tax savings might be modest.

Getting Professional Advice

The 2027 changes create complex interactions between income tax, corporation tax, dividend tax, and CGT. Each landlord's situation is unique, and the optimal structure depends on:

  • Current and projected rental income levels
  • Other income sources and tax position
  • Capital gains position on existing properties
  • Long-term investment and exit strategies
  • Family circumstances and succession planning

A specialist property accountant can model different scenarios and help you make informed decisions before the 2027 changes take effect.

Key Decisions Timeline

If you're considering incorporation, the key timeline is:

  • Now to March 2027: Evaluate your position and complete any property transfers
  • April 2027: New property tax rates take effect
  • April 2026: MTD for Income Tax becomes mandatory for relevant landlords

Acting early gives you more options and time to implement tax-efficient structures before the rates change.

Conclusion

The 2027 property tax rate changes represent a fundamental shift in UK landlord taxation. While basic rate taxpayers see a smaller advantage from incorporation, higher rate taxpayers face a clear incentive to move properties into company structures.

The 2027 tax rates incorporation decision requires careful analysis of your specific circumstances, including current tax position, capital gains liability, and long-term investment goals. With the changes approaching rapidly, now is the time to model different scenarios and make informed decisions about your property portfolio structure.