The 2027/28 tax year brings significant changes for UK landlords. From 6 April 2027, property income will be taxed at separate rates: 22% for basic rate taxpayers, 42% for higher rate, and 47% for additional rate. Combined with the existing Section 24 mortgage interest restrictions, this creates both challenges and planning opportunities for property investors.
These changes affect every landlord differently. A basic rate taxpayer with £15,000 rental profit will see their property tax increase from £3,000 (20%) to £3,300 (22%). Higher rate taxpayers face a jump from 40% to 42%. Understanding how to plan for these changes now could save thousands in tax over the coming years.
What Are the New 2027 Property Tax Rates?
From April 2027, property income will be taxed separately from other income sources. The new rates replace the current system where rental profits are added to employment income and taxed at standard rates.
The separate property income tax rates for 2027/28 are:
- 22% for basic rate taxpayers (property income within the basic rate band)
- 42% for higher rate taxpayers
- 47% for additional rate taxpayers
These rates apply to net rental profits after allowable expenses and Section 24 calculations. The personal allowance (£12,570 for 2026/27) still applies to total income, but once you're paying tax, property profits face these dedicated rates.
A landlord earning £30,000 from employment and £20,000 net rental profit would pay 20% on employment income up to the basic rate threshold, then 22% on the property income portion.
How Section 24 Interacts with 2027 Tax Changes
Section 24 mortgage interest relief restrictions remain in place under the new system. This creates a double impact: reduced mortgage interest relief combined with higher tax rates on property income.
Currently, mortgage interest relief is restricted to a 20% tax credit. From 2027, this 20% credit applies against property income taxed at 22%, 42% or 47%. The gap widens significantly for higher rate taxpayers.
Consider a higher rate landlord with £50,000 rental income and £30,000 mortgage interest:
- 2026/27: £20,000 taxable profit, £30,000 × 20% = £6,000 tax credit, effective rate around 28%
- 2027/28: Same profit and credit, but property tax at 42%, effective rate around 30%
The combination makes incorporation into a limited company more attractive for many landlords, especially those with significant mortgage borrowing.
Planning Strategies for the 2027 Tax Year
Timing Property Disposals
Landlords considering selling properties might benefit from completing sales before April 2027. While capital gains tax rates remain unchanged (18%/24%), the reduced after-tax rental income from 2027 affects the hold-vs-sell calculation.
A property generating £8,000 annual profit for a higher rate taxpayer produces £4,800 after tax currently (40%). From 2027, this drops to £4,640 (42% rate). Over 10 years, that's £1,600 less income per property.
Accelerating Improvement Expenditure
Property improvements and repairs remain fully deductible against rental income. Bringing forward planned work to the 2026/27 tax year means relief at current rates rather than the higher 2027 rates.
A higher rate landlord spending £10,000 on property improvements saves £4,000 in tax in 2026/27 versus £4,200 from 2027/28. While only £200 difference per £10,000 spent, the savings add up across multiple properties.
Incorporation Timing
The 2027 changes make incorporation more attractive, but timing matters. Incorporating before April 2027 allows property transfers at current CGT rates and establishes the company structure before higher property income tax rates apply.
Limited companies continue paying corporation tax at 19% (small profits rate) or 25% (main rate) on property profits. Section 24 doesn't apply to companies, making them increasingly attractive for leveraged portfolios.
However, incorporation involves costs and complexity. A specialist property accountant can model whether incorporation saves tax in your specific circumstances.
Portfolio Size Considerations
The impact of section 24 2027 tax year planning varies significantly by portfolio size and borrowing levels.
Small Portfolio Landlords (1-3 Properties)
Landlords with minimal borrowing may see limited benefit from incorporation due to setup costs and ongoing compliance. The 2% property income tax increase (20% to 22% basic rate, 40% to 42% higher rate) might be acceptable compared to company administration burdens.
Focus should be on maximising allowable deductions and considering whether to maintain or reduce the portfolio size.
Medium Portfolio Landlords (4-10 Properties)
This group faces the most complex decisions. Higher absolute tax increases make incorporation more viable, but personal circumstances vary widely.
A landlord with 6 BTL properties, £120,000 gross rental income, £60,000 mortgage interest, and £20,000 other expenses generates £40,000 net profit. Under Section 24, they receive only £12,000 mortgage relief (20% of £60,000).
Current effective tax: approximately £16,800. From 2027: approximately £17,600 (assuming higher rate taxpayer). Annual increase: £800 across the portfolio.
Large Portfolio Landlords (10+ Properties)
Substantial portfolios almost certainly benefit from incorporation planning. The combination of Section 24 restrictions and higher property tax rates creates significant annual tax increases.
Additionally, Making Tax Digital requirements from April 2026 add compliance complexity for individual landlords with gross rental income over £10,000.
Timing Your 2027 Tax Planning
Effective section 24 2027 tax year planning requires action before the changes take effect. Key deadlines and timing considerations include:
2025 Calendar Year
Model your current and projected tax position under the new rates. Calculate the annual tax increase across your portfolio and evaluate incorporation benefits.
If incorporating, begin the process early. Property transfers to companies can trigger capital gains tax, requiring careful timing and potentially holdover relief planning.
2026/27 Tax Year
This is the final tax year under current property income tax rates. Consider accelerating income or expenditure where beneficial.
Complete any planned property sales where the proceeds won't be reinvested immediately. The after-tax income from property reduces from 2027, affecting the investment return calculation.
April 2027 and Beyond
Once the new rates apply, focus shifts to optimising the tax position within the new framework. This includes maximising allowable expenses, potentially restructuring financing arrangements, and ongoing incorporation evaluation.
Professional Planning Support
The interaction between Section 24, new property tax rates, and individual circumstances creates complex planning scenarios. What works for one landlord may be inappropriate for another.
A qualified property tax specialist can model your specific situation, compare incorporation benefits, and ensure compliance with both current and future requirements.
Key areas where professional advice adds value include:
- Incorporation feasibility and timing
- Property disposal vs retention analysis
- Expense optimisation strategies
- MTD preparation and compliance
- Cash flow and financing planning
The cost of property accounting services is typically outweighed by tax savings, especially with the 2027 changes approaching.
Common Planning Mistakes to Avoid
Section 24 and property tax 2027/28 planning involves several potential pitfalls:
Rushed incorporation decisions: Incorporating without proper analysis can increase rather than reduce tax costs. Company structures suit some landlords but not others.
Ignoring CGT on incorporation: Transferring properties to a company typically triggers capital gains tax. This upfront cost must be factored into the planning calculation.
Overcomplicating simple portfolios: Small, low-borrowing portfolios may be better remaining as individual ownership despite higher tax rates.
Delaying professional advice: Complex changes require early planning. Last-minute decisions limit available options and may increase costs.
Key Takeaways for 2027 Planning
The 2027/28 tax year represents the most significant change to UK property taxation since Section 24 implementation. Landlords face higher tax rates on property income while mortgage interest relief remains restricted.
Planning should begin now, focusing on portfolio-specific analysis rather than generic advice. The optimal strategy depends on property numbers, borrowing levels, other income sources, and long-term investment objectives.
For many landlords, the combined impact of Section 24 and new property tax rates will make incorporation attractive. However, this isn't universal – small portfolios with minimal borrowing may see limited benefit.
The key is understanding your specific position and acting accordingly. Professional tax advice becomes increasingly valuable as the changes approach and their complexity becomes apparent.