The separate property income tax rates of 22% basic, 42% higher and 47% additional from 6 April 2027 are now enacted in Finance Act 2026 c.11 section 7 (Royal Assent on 18 March 2026), for England and Northern Ireland. Finance Act 2026 Schedule 1 also lifts the Section 24 finance-cost reducer (the credit given under the ITTOIA 2005 s.272A restriction, computed under ss.274AA and 274C) to the new 22% property basic rate, so it rises in step with the rates. The gap between the rate at which property income is taxed and the rate at which mortgage interest is relieved is therefore unchanged: zero for basic-rate landlords, 20 percentage points at the higher rate, 25 points at the additional rate. The real 2027 cost is the flat 2 percentage point rate rise on net rental profit. This page walks through that by landlord profile, sets out the planning responses available before commencement, and locates where the change does and does not bite.
For the wider Section 24 mechanism see our Section 24 tax relief complete guide. For the incorporation comparison see our BTL limited company complete guide. For the 2027 pillar covering the rate framing across all property tax interactions see our 2027 property income tax rates pillar.
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The April 2027 property income rates: now enacted via Finance Act 2026
Finance Act 2026 c.11 section 7 establishes three new rates that apply specifically to property income from 6 April 2027:
- Property basic rate: 22% (compared to 20% general basic rate)
- Property higher rate: 42% (compared to 40% general higher rate)
- Property additional rate: 47% (compared to 45% general additional rate)
The rates apply for the tax year 2027-28 and subsequent tax years (Finance Act 2026 s.6(8)). Property income for this purpose follows the existing definition in ITTOIA 2005 Part 3 (UK property business income) and Part 4 (overseas property business income where relevant). The band thresholds (£12,570 personal allowance, £50,270 basic-rate ceiling, £125,140 higher-rate ceiling) continue to operate as for general income tax in 2027-28; band allocation depends on total income from all sources, with the property income slice falling within the appropriate band for the rate that then applies.
For 2026/27 the standard 20% / 40% / 45% rates continue. The commencement is 6 April 2027, so the 2026/27 Self Assessment return (due 31 January 2028) still uses the pre-FA-2026 rates. The 2027/28 Self Assessment return (due 31 January 2029) will be the first return computed under the new property-specific rates.
How Section 24 works alongside the 2027 rates
The Section 24 mechanism for individual residential landlords has been unchanged since the phased introduction completed on 6 April 2020. Mortgage interest and other allowable finance costs are not deducted from rental profit; instead a 20% basic-rate tax credit is applied against the income tax liability. The calculation under ITTOIA 2005 s.272A produces:
- Property profit before finance cost deduction (rental income minus all expenses other than finance costs)
- Income tax on property profit at the applicable property income rate (in 2026/27, general 20% / 40% / 45%; from 6 April 2027, property 22% / 42% / 47%)
- Section 24 credit: the basic-rate credit on allowable finance costs (20% in 2026/27, 22% from 6 April 2027)
- Net property income tax: tax under step 2 minus the credit under step 3
The credit is capped at the lower of the credit rate applied to finance costs, to residential rental profit before finance costs, or to total income above the personal allowance (the credit rate being 20% in 2026/27 and 22% from 6 April 2027). Where the cap bites, un-credited finance cost carries forward indefinitely and is available against future years.
From 6 April 2027 the calculation continues to work in the same way, and because the credit rate at step 3 rises to 22% alongside the basic rate at step 2, the relationship between the two is preserved. For every £1 of allowable finance cost:
- Basic-rate landlord: 22% tax on the equivalent £1 of property profit; 22% credit on the £1 of interest; the two cancel, so there is no wedge on financed property, exactly as in the pre-2027 position.
- Higher-rate landlord: 42% tax; 22% credit; net 20 pence per £1 of interest, the same as the pre-2027 gap of 20 pence (40% minus 20%).
- Additional-rate landlord: 47% tax; 22% credit; net 25 pence per £1 of interest, the same as the pre-2027 gap of 25 pence (45% minus 20%).
The headline conclusion is straightforward: the Section 24 wedge does not widen, because the credit moves up with the rates. Every landlord still pays 2 percentage points more on net rental profit (profit after finance costs), so the absolute increase is largest for landlords with the most net profit, not for the most heavily geared portfolios.
Worked examples by landlord profile
To make the abstract mechanics concrete, four worked examples covering the most common landlord profiles. All assume the landlord is UK resident, the property is residential, and the income tax position is the operative one (no incorporation, no pension contributions changing the band position).
Profile 1: landlord with no mortgage, £10k rental profit
Mike has £45,000 employment income and a mortgage-free BTL generating £15,000 rental income with £5,000 of allowable expenses (letting agent, insurance, maintenance). Rental profit £10,000. Combined income £55,000.
| Year | Property income tax on rental profit | Notes |
|---|---|---|
| 2026/27 | £5,270 at 20% + £4,730 at 40% = £2,946 (no S24 credit because no interest) | Pre-FA-2026 rates |
| 2027/28 | £5,270 at 22% + £4,730 at 42% = £3,146 | Post-FA-2026 rates; 2 percentage point uplift on the £10,000 rental slice |
| Additional tax | £200 per year |
Mike's increase is purely the rate uplift: £200 more per year (2% of his £10,000 rental profit) because the property rates moved up 2 points. The Section 24 mechanism is not relevant to him (no mortgage interest to relieve).
Profile 2: basic-rate landlord, geared portfolio
Sara has £35,000 employment income and a single BTL with £20,000 rental income, £4,000 non-finance expenses, and £15,000 of mortgage interest. Rental profit before interest £16,000. Combined income for band purposes (excluding S24): £51,000, just over the basic-rate threshold.
| Item | 2026/27 (20%/40% rates) | 2027/28 (22%/42% rates) |
|---|---|---|
| Property profit before interest | £16,000 | £16,000 |
| Allocation: basic-rate slice | £15,270 at 20% = £3,054 | £15,270 at 22% = £3,359 |
| Allocation: higher-rate slice | £730 at 40% = £292 | £730 at 42% = £307 |
| Tax before S24 credit | £3,346 | £3,666 |
| S24 credit (20% / 22% of £15,000) | (£3,000) | (£3,300) |
| Net property income tax | £346 | £366 |
| Year-on-year increase | +£20 |
Sara's increase is just £20 per year. The 2 percentage point rate uplift adds £320 on the £16,000 of profit before interest (£305 on the £15,270 basic-rate slice plus £15 on the £730 higher-rate slice), but the Section 24 credit also rises from £3,000 to £3,300 (22% of £15,000), giving £300 more relief, so the net increase is £20. That is 2% of her £1,000 of net profit after finance costs. The cap does not bite (£15,000 interest is below £16,000 profit before interest).
Profile 3: higher-rate landlord, three-property portfolio
Joel has £75,000 employment income and three BTL properties: gross rents £42,000, non-finance expenses £8,000, mortgage interest £28,000. Rental profit before interest £34,000.
| Item | 2026/27 (40% rate) | 2027/28 (42% rate) |
|---|---|---|
| Property profit before interest | £34,000 | £34,000 |
| Tax at higher rate (£34,000 at 40% / 42%) | £13,600 | £14,280 |
| S24 credit (20% / 22% of £28,000) | (£5,600) | (£6,160) |
| Net property income tax | £8,000 | £8,120 |
| Year-on-year increase | +£120 |
Joel's increase is £120 per year: the 2 percentage point uplift adds £680 on the £34,000 of profit before interest, but his Section 24 credit rises £560 (from £5,600 to £6,160, 22% of £28,000), leaving a net £120. That is 2% of his £6,000 of net profit after finance costs. The cap does not bite for him (£28,000 interest is below £34,000 profit before interest; total income well above the personal allowance). Over a five-year holding period after April 2027 the cumulative extra tax is around £600, ignoring any rate changes, growth in rents, or remortgaging effects on interest levels.
Profile 4: additional-rate landlord, large geared portfolio
Priya has £180,000 employment income and a portfolio of 8 BTL properties: gross rents £140,000, non-finance expenses £28,000, mortgage interest £85,000. Rental profit before interest £112,000.
| Item | 2026/27 (40%/45% rates) | 2027/28 (42%/47% rates) |
|---|---|---|
| Property profit before interest | £112,000 | £112,000 |
| Allocation: higher-rate band remaining | £0 (already at additional rate) | £0 |
| Tax: all at additional rate (£112,000 at 45% / 47%) | £50,400 | £52,640 |
| S24 credit (20% / 22% of £85,000) | (£17,000) | (£18,700) |
| Net property income tax | £33,400 | £33,940 |
| Year-on-year increase | +£540 |
Priya's increase is £540 per year: the 2 percentage point uplift adds £2,240 on the £112,000 of profit before interest, but her Section 24 credit rises £1,700 (from £17,000 to £18,700, 22% of £85,000), leaving a net £540. That is 2% of her £27,000 of net profit after finance costs. The compounding effect over a 7-10 year holding horizon is roughly £4,000-£5,500 of extra tax purely from the rate change, before any further rate movements or portfolio growth. The incorporation conversation still sharpens here because a company deducts the full £85,000 of interest and pays 25% rather than 47%.
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Multi-year wedge projection
The 2-percentage-point uplift on the property income rate is a step change at 6 April 2027, not a phased transition. Because the Section 24 credit rises in step, the annual cash impact in 2027-28 and each subsequent year (assuming no behavioural response and no further rate changes) is approximately 2% of net rental profit after finance costs for each landlord. Over a 10-year post-commencement horizon for the four profiles above:
| Profile | Annual extra tax 2027-28 | 10-year cumulative (no growth) |
|---|---|---|
| 1: Mike (unmortgaged, £10k net profit) | £200 | £2,000 |
| 2: Sara (geared, £1k net profit) | £20 | £200 |
| 3: Joel (3 BTLs, £6k net profit) | £120 | £1,200 |
| 4: Priya (8 BTLs, £27k net profit) | £540 | £5,400 |
Adding rent inflation (typically 3-5% per year in the period 2020-2025) and the compound effect on the property income rate base produces a larger 10-year figure. The point of the table is to size the recurring cost rather than to forecast precisely.
Planning responses available before 6 April 2027
Four practical responses are available to individual landlords ahead of the April 2027 commencement. None is decisive in isolation; the right combination depends on the specific portfolio.
Incorporation
Limited companies are outside both Section 24 and the April 2027 property income rate change. Companies deduct mortgage interest in full against rental profit and pay corporation tax at 19% (small profits rate, profits up to £50,000) and 25% (main rate, profits above £250,000) with marginal relief tapering between. The personal-vs-company differential widens by 2 percentage points across all bands from 6 April 2027, because the personal property rate rises 2 points while corporation tax is unchanged. The case is strongest where leverage is high, because the company deducts the full finance cost rather than relieving it at the basic-rate credit.
Incorporation is not free. Transferring existing personally-owned property into a company triggers SDLT (including the 5% additional dwellings surcharge), CGT at market value (with incorporation relief under TCGA 1992 s.162 available where the conditions are met), and brings ongoing additional compliance cost (CT600, annual accounts, confirmation statement, potentially ATED where property is worth over £500,000). Limited-company BTL mortgage rates run materially higher than personal BTL rates. The decision is sensitive to leverage, marginal income tax rate, length of intended hold, and the cost of transfer. For new acquisitions the analysis is simpler (no SDLT or CGT on transfer in); for existing portfolios the breakeven point typically sits 3-5 years out.
Capital expenditure timing
Capital expenditure (extensions, conversions, new bathroom suites) does not reduce rental profit but enters the CGT base cost on eventual sale. Revenue repairs (replacing a broken boiler like-for-like, fixing leaks, repainting) are deductible in the year incurred. Because rates rise in 2027/28, deferring discretionary revenue repair work from 2026-27 into 2027-28 produces relief at the post-FA-2026 rates (22% / 42% / 47%) rather than the pre-FA-2026 rates (20% / 40% / 45%). The differential per £1 of repair spend is 2 pence at each band; small in absolute terms but real on a significant repair budget, and only worth acting on where the work was due around that time anyway.
Financing review
The reduced post-tax value of mortgage interest from 6 April 2027 marginally tilts the financing calculation away from leverage. Where alternative financing structures are available (commercial finance, family equity injection, partial pay-down from accumulated profits), the relative attractiveness improves at the margin. For most landlords the financing decision is dominated by access-to-capital and rate-of-return considerations rather than by tax, but the tax tilt becomes more material at higher leverage ratios.
Income redistribution
For couples where one spouse is in a lower income tax band than the other, transferring beneficial interest in a property (or a share of it) to the lower-band spouse moves rental profit into a lower property income tax band. A spouse transfer under TCGA 1992 s.58 is on a no-gain-no-loss basis for CGT, and a Form 17 election allows beneficial ownership for income tax to reflect the actual ownership split (rather than the default 50/50 for jointly held property). The mechanic is fact-sensitive but routinely used; the saving between a higher-rate and a basic-rate spouse is 20 percentage points per pound shifted, the same in 2027/28 (42% versus 22%) as in 2026/27 (40% versus 20%), so the planning is as valuable after the change as before.
Where the 2027 change does not bite
Three positions are outside the April 2027 rate change:
- Limited-company landlords. Companies pay corporation tax on rental profit, not income tax. Finance Act 2026 s.7 amends the income tax rates only. Corporation tax rates and the Section 24-irrelevance of company ownership are unchanged.
- Unmortgaged landlords. With no mortgage interest there is no Section 24 credit in play at all; the only impact is the 2-percentage-point rate uplift on rental profit itself (per Profile 1 above). Ungeared landlords actually feel the change most in proportion to their profit, because all of it is taxed and none is sheltered by finance costs.
- Cessation in the 2026-27 year. A landlord who disposes of the last property in their portfolio before 6 April 2027 has no 2027-28 rental income to which the new rates apply. The CGT calculation on disposal is unaffected (residential CGT remains 18% / 24%); the disposal itself does not bring the new rates into scope retrospectively.
Limited-liability partnerships (LLPs) where one or more partners is a natural person sit in a more nuanced position because LLP members are typically taxed on their share of LLP profits as if they had received them directly, applying the rate appropriate to their individual circumstances. An LLP partner who is an individual receiving a share of LLP rental profit will face the new 22/42/47 rates on their share from 6 April 2027.
Cluster context: this page within the 2027 rate framework
This page covers the Section 24 mechanic interaction specifically. Adjacent pages cover the broader 2027 rate framework from other angles:
- The pillar treatment of the 2027 rates across all property tax interactions is in our 2027 property income tax rates pillar.
- The CGT-side analysis of how the 2027 changes affect disposal timing is in how 2027 property tax rates affect CGT on property sales.
- The 2026/27 CGT rate position itself is in our CGT rates property 2026/27 page.
- The full Section 24 mechanism is in our Section 24 tax relief complete guide.
- The incorporation comparison is in our BTL limited company complete guide.
Two additional intra-residual pages cover overlapping ground (`section-24-2027-tax-year-planning-landlords` and `section-24-2027-tax-year-planning-uk-landlords`) and are flagged for cluster-level resolution in a future content cycle. The current rewrite establishes this page as the canonical Section-24-×-2027-rate-interaction destination.