Section 24 and the 2027 Tax Year: What Actually Changes for UK Landlords?

The 2027/28 tax year is the biggest change to how UK landlords are taxed since Section 24 (S24) was phased in. From 6 April 2027, rental profit stops being taxed at your ordinary income tax rates and gets its own set of rates: 22%, 42% and 47%. Section 24 does not go away, and the way it works does not change. This page explains exactly what is changing, what is staying the same, the dates that matter and who is affected, so you can see where you stand before deciding what to do about it.

If you have already grasped the change and want the practical moves and timing (decision tree, spouse transfers, incorporation timing, an action timeline), our companion guide on how landlords should plan ahead for the 2027 tax year is the action playbook. This page is the explainer that sits in front of it.

What is actually changing in 2027/28?

Three things change on 6 April 2027, and one important thing does not. The change is enacted law, not a proposal: it was announced at the Autumn Budget 2025 and is set out in Finance Act 2026 (c.11), which received Royal Assent on 18 March 2026.

Element	2026/27 (now)	2027/28 (from 6 April 2027)
Property income, basic rate	20% (same as main rate)	22% (separate property rate)
Property income, higher rate	40%	42%
Property income, additional rate	45%	47%
Section 24 finance-cost credit	20%	22%
How profit is taxed	Added to your other income and taxed at standard rates	Taxed at its own dedicated property rates
Nations affected	UK-wide standard rates	England, Wales and Northern Ireland (Scotland excluded)

The headline is a flat 2 percentage point premium on property income at every band. Crucially, the Section 24 credit rises by the same 2 points, from 20% to 22%, so it tracks the new basic rate. That is the thing most early coverage got wrong: because the credit moves up in step, no new Section 24 wedge opens up. The restriction is no more punishing in percentage-point terms in 2027/28 than it is now. What changes is simply the rate, not the relief mechanism. For the full wedge-math and worked examples by landlord profile, see our 2027 property tax rates and Section 24 relief guide and the 2027 property income tax rates pillar.

What is staying exactly the same?

It is worth being clear about what is not changing, because some landlords assume more is in flux than really is.

• The Section 24 mechanism. You still cannot deduct mortgage interest, arrangement fees or other finance costs from rental profit. You still get them back only as a basic-rate tax credit (now 22%). The lower-of-three cap (finance costs, property profits, adjusted total income) is unchanged, and any disallowed credit still carries forward.
• Who Section 24 hits. It applies to individual landlords, partnerships and trusts. Companies are outside it and always have been.
• Capital gains tax. Residential property gains stay at 18% and 24%, with a £3,000 annual exempt amount. April 2027 does not touch CGT.
• The personal allowance amount. The allowance itself is unchanged; only the order in which it is applied changes (see below).
• What counts as an allowable expense. Repairs, letting agent fees, insurance, safety certificates and the rest remain deductible as before. Capital improvements still add to your CGT base cost rather than being deducted from rent.

How property income is taxed under the new rates

Under the old system your rental profit was stacked on top of your other income and taxed at whatever band it fell into. From 2027/28 property income is taxed at its own rates, but those rates are still applied band by band. A landlord with £30,000 of employment income and £20,000 of net rental profit will see the property profit that sits in the basic-rate band taxed at 22%, and any portion pushed into the higher-rate band taxed at 42%.

So the banding logic survives; it is the rate applied within each band that is now property-specific. This matters for landlords near a band threshold, because a modest rise in profit can push a slice from 22% to 42% just as it used to move from 20% to 40%.

The personal-allowance ordering rule (the bit most guides miss)

This is the change that gets the least attention and catches out landlords whose income is mostly or entirely from property. From 2027/28, the personal allowance and other reliefs are set against your non-property income first. The gov.uk technical note is explicit: allowances are deducted from income which is not property, savings or dividend income first. Only what is left over is set against property income.

For a landlord with a salary or pension that already absorbs the personal allowance, this changes nothing. But for a landlord whose income is wholly property, the effect is real: less of the allowance lands on the property profit than the old combined arithmetic might have implied, leaving more profit exposed to the new property rates. If property is your main or only income, this ordering rule is the single most important detail to model.

Worked example: a higher-rate landlord across the 2027 boundary

Take Mark, a higher-rate taxpayer with £60,000 of employment income, £30,000 of net rental profit and £15,000 of mortgage interest. His employment income already uses up the personal allowance, so the ordering rule above does not change his answer; this is the clean, common case.

Step	2026/27	2027/28
Rental profit (after expenses, before finance cost)	£30,000	£30,000
Mortgage interest deducted from profit	£0 (Section 24)	£0 (Section 24)
Tax on rental profit	£30,000 × 40% = £12,000	£30,000 × 42% = £12,600
Section 24 finance-cost credit	£15,000 × 20% = £3,000	£15,000 × 22% = £3,300
Net tax on property	£9,000	£9,300

Mark pays £300 more, which is 2% of his £15,000 of net profit after finance costs. The 2 point rate rise on profit is partly offset by the credit rising from 20% to 22%, exactly as the design intends. Notice the credit increase did real work here: without it the rise would have been larger. Contrast this with a landlord whose only income is property, where the ordering rule above changes the starting point before the rates even apply.

Making Tax Digital lands alongside the new rates

Making Tax Digital for Income Tax (MTD for ITSA) is being phased in over the same window as the rate change, so the two arrive together for many landlords. It is mandatory based on your gross qualifying income, not your net profit, which is a common trap: a heavily mortgaged landlord can be in scope on a slim margin.

• From 6 April 2026: gross property and self-employment income over £50,000.
• From 6 April 2027: over £30,000 (the same day the new rates begin).
• From 6 April 2028: over £20,000.

If you are mandated, you will keep digital records, send quarterly updates to HMRC through compatible software, and finalise the year digitally. Getting this bedded in before the rates change gives you quarterly visibility of a liability that is now 2 points higher, which helps with payments on account and cash-flow planning. For the detail on who is in and how the threshold is measured, see our guides on the April 2026 MTD deadline for landlords and the gross-versus-net qualifying income test.

Who is most affected by the change?

The change applies to every individual landlord in England, Wales and Northern Ireland, but it bites unevenly:

• Higher and additional-rate landlords feel the full 2 point rise on profit, and the larger the portfolio, the larger the absolute increase.
• Heavily geared landlords already carry the Section 24 cost; the rate rise sits on top, though the higher credit cushions part of it.
• Property-only landlords near the personal allowance are affected by the ordering rule as well as the rate, so their position needs modelling rather than a rule of thumb.
• Basic-rate landlords see the smallest effect: 20% to 22% on profit, with the credit also at 22%.
• Companies are unaffected, which is why incorporation comes up so often, though it is not right for everyone.

If you want to see the higher-rate position in depth, our guide on how the 2027 changes affect higher-rate taxpayers goes further than this overview.

What this is not: clearing up the common misreadings

A few myths have spread faster than the facts, so it is worth naming them.

• "Wales and Scotland set their own property rates from 2027." Not for 2027/28. Wales is inside the 22%/42%/47% rates. Only Scotland is carved out, and it stays on its existing devolved income tax rates. The power for Scotland and Wales to set their own property rates in future has been flagged by government but is not in force for 2027/28.
• "You should sell before April 2027 to beat a tax rise." The rise is to income rates, not capital gains tax. CGT on a sale is unchanged at 18% and 24%. A disposal decision should turn on CGT and future net yield, not on the income-rate change.
• "Section 24 relief is being cut to nothing." The opposite: the credit rises from 20% to 22%. The mechanism and the carry-forward are untouched.
• "There is a deadline to incorporate before April 2027." There is no statutory deadline. Incorporating earlier just starts company taxation sooner; it does not avoid the CGT, SDLT and claim-required incorporation relief consequences of the transfer.

Where to go next once you understand the change

This page is the orientation layer: what is changing, what is not, and the dates. The decisions that follow (hold and optimise, shift a share to a lower-rate spouse, incorporate, or time a disposal) belong to the planning stage, and they depend entirely on your own numbers. Our companion guide on 2027 tax year planning for landlords works through those moves and the timing of each.

For the routes that come up most often:

• Modelling whether a company makes sense: the 2027 rates incorporation decision and the buy-to-let limited company guide.
• Splitting income with a spouse on a lower rate: the no-gain-no-loss transfer rule (TCGA 1992 s.58) and the 50/50 default that Form 17 displaces (ITA 2007 s.836) are covered in our transferring property to a spouse guide.
• Making sure nothing deductible is missed before the rate rises: our landlord tax deductions list.
• The Section 24 mechanics themselves: the Section 24 mortgage interest restriction pillar and how to claim the mortgage interest credit.

The sensible order is simple: understand the change (you are here), model your own position, then decide. Because the effects vary so much by income mix, borrowing and portfolio size, the worst move is to act on a headline figure. If your position is finely balanced, especially around the personal-allowance ordering rule or an incorporation decision, it is worth having the numbers checked before you commit.