Section 24 for Higher-Rate Taxpayers: What the 42% Rate Means in 2027

From 6 April 2027 your rental profits leave the general income tax bands and sit in their own schedule, taxed at 22%, 42% and 47%. If you are a higher-rate taxpayer that headline matters in one specific way: property profit above £50,270 is taxed at 42%, not the 40% you pay today. This is enacted law, not a proposal. Finance Act 2026 (c.11) section 7 received Royal Assent on 18 March 2026 and sets the rates outright.

The all-bands picture is covered in full by our 2027 property tax rates guide. This page is narrower and more useful if you are already higher-rate: it is about what the 42% rate changes for your decisions. If you want the base case first (the cost of Section 24 to a landlord who is already higher-rate, the 20%-versus-40% gap as it stands today), start with Section 24 for higher-rate taxpayers in 2026, then come back here for what 2027 layers on top.

Am I a "higher-rate landlord" for property purposes?

The separate schedule does not change the band test. Your total income still decides which band a pound of property profit falls into, where total income means employment, self-employment, pensions, savings, dividends and property profit added together. Once that total crosses £50,270 (the higher-rate threshold across England, Wales and Northern Ireland), the slice of property profit sitting above the line is taxed at 42%.

What trips up geared landlords is the order in which Section 24 works. Mortgage interest is no longer a deduction. You add it back, report the full rental profit, then take a tax credit. So your taxable property profit is higher than your economic profit, and it is the taxable figure that counts towards the £50,270 test. A landlord whose rents barely cover the mortgage can still be pushed into higher-rate territory by the interest add-back alone. That mechanism, and how to test whether the add-back is what tips you over, is set out in how Section 24 pushes landlords into the higher-rate band and the short yes-or-no explainer can Section 24 push you into higher-rate tax.

One regional point worth stating plainly: Scotland is carved out of the 2027 property schedule. Section 7 sets the 22/42/47 rates for England, Wales and Northern Ireland only, and Scottish landlords continue under the rates set at Holyrood. Section 24, being a UK-wide income tax mechanism, still applies in Scotland, but the separate property rates do not.

The £50,270 cliff: when property profit tips to 42%

The most common error is to assume that crossing £50,270 taxes all your property profit at 42%. It does not. The 42% rate is marginal: it bites only on the profit above the threshold. Profit below it stays at the 22% property basic rate.

Worked example: the band boundary. A landlord has £48,000 of employment income and £6,000 of taxable property profit (after allowable expenses, with mortgage interest added back). The first £2,270 of property profit fills the gap up to £50,270 and is taxed at 22% (£499). The remaining £3,730 sits above the threshold and is taxed at 42% (£1,567). The finance-cost credit is then applied separately against the tax due. The point is that the same £6,000 of profit straddles two rates, so the marginal pound matters far more than any "I am now a 42% landlord" headline suggests.

Measure	2026/27 (current)	2027/28 onwards (enacted)
Higher-rate property income tax rate	40%	42%
Section 24 finance-cost credit rate	20%	22%
Higher-rate finance-cost wedge (rate minus credit)	20 points (40 minus 20)	20 points (42 minus 22)
Net change on net rental profit	baseline	+2 points (flat)
Value of a £1,000 deductible cost	£400	£420
Higher-rate threshold (England, Wales, NI)	£50,270	£50,270
Scope	UK-wide bands	England, Wales, NI (Scotland excluded)

How Section 24 interacts with the 42% rate

Here is the part that gets misreported. The finance-cost credit rises in step with the rates. From 2027/28 the reduction is given at the property basic rate of 22%, not 20%. ITTOIA 2005 section 274AA was amended by Finance Act 2026 Schedule 1 to substitute the property basic rate for the old basic rate from 2027/28 onwards. So a higher-rate landlord's wedge, the gap between the tax rate and the relief, stays at 20 percentage points (42 minus 22), exactly the size of today's wedge (40 minus 20).

The honest number, then, is a flat 2 percentage points on net rental profit after finance costs. It is not a widening squeeze, and it is not 22 points of lost relief. Anyone telling you the gap grows to 22 points has missed the credit rising in step.

Worked example: the flat 2 points. Sarah owns three buy-to-lets generating £60,000 of rent with £30,000 of mortgage interest and £8,000 of other allowable expenses. Her £55,000 salary already makes her higher-rate. Her taxable property profit is £52,000 (interest not deducted). At 42% that is £21,840 of property tax, less a 22% credit on the £30,000 interest (£6,600), giving net property tax of £15,240. Under 2026/27 the same numbers give £20,800 at 40% less a £6,000 credit (20% of £30,000), or £14,800. Sarah pays £440 more, which is exactly 2% of her £22,000 of net profit after finance costs. The credit rising to 22% is what keeps that increase flat.

This also debunks the idea that the most heavily geared landlords are hit hardest by the 2027 change. Because the credit tracks the rate, a 75% loan-to-value portfolio sees the same 2-point rise on its (smaller) net profit as a lightly geared one. The gearing question was settled by Section 24 itself when it was phased in; the 2027 rate change is a flat 2 points on top, for everyone in the higher band. For the underlying mechanics of the restriction, see our guide to the Section 24 mortgage interest restriction.

The higher-rate incorporation break-even: 42% personal versus 19% to 25% company

The incorporation question is sharper for higher-rate landlords than for anyone else, because the gap is wider. A company pays corporation tax of 19% on the first £50,000 of augmented profits (the small profits rate), 25% above £250,000 (the main rate), and an effective rate of about 26.5% in the marginal band between, where relief tapers off using the standard 3/200 fraction. Against a personal property rate of 42%, that is a gap of 15 to 23 points on profit the company retains.

Two caveats decide whether the gap is real for you. First, those £50,000 and £250,000 limits are shared, not multiplied, across associated companies, so a landlord running several special-purpose vehicles divides the limits between them and can be in the marginal band sooner than expected. Second, the gap is on retained profit. The moment you extract profit as dividends, dividend tax layers on top and the advantage narrows, sometimes sharply for a landlord who needs all the income to live on.

Worked example: retained versus personal. A higher-rate landlord with £45,000 of company rental profit retained in the company to fund the next deposit pays 19% corporation tax (£8,550), leaving £36,450 to reinvest. The same £45,000 of personal property profit, sitting wholly in the higher band, attracts 42% (£18,900), leaving £26,100. For a landlord growing a portfolio rather than drawing income, that £10,350 difference compounds. For a landlord who needs the cash now, the picture flips once dividend tax is counted.

The full comparison, including the dividend-extraction maths, lives in corporation tax versus income tax for landlords in 2027, and the structural mechanics are in the buy-to-let limited company guide.

The real cost of incorporating: SDLT, CGT and extraction

The corporation tax saving is the headline; the transfer costs are where incorporation decisions are won or lost. Three charges deserve attention before you move a single property into a company.

SDLT. A transfer into a company is a purchase by the company at market value, so the 5% additional-dwellings surcharge under Finance Act 2003 Schedule 4ZA applies. For a single dwelling worth more than £500,000 acquired by a non-natural person, a second charge can also bite: the 17% flat charge under Schedule 4A on the whole consideration (raised from 15% by Finance Act 2025 section 53). Property-rental-business relief can disapply that 17% charge where the conditions are met and the relief is claimed, with the ATED regime running alongside under Part 3 of Finance Act 2013. The common shorthand that "you just pay the 5% surcharge" is wrong for higher-value single dwellings, and getting this figure wrong can swallow several years of corporation tax saving.

CGT. Transferring a property into a company is a disposal at market value for capital gains tax, taxed at the residential rates of 18% and 24%. Incorporation relief under TCGA 1992 section 162 can defer the gain where the whole business is transferred as a going concern in exchange for shares, but since Finance Act 2026 it must be actively claimed rather than applying automatically. Whether a part-time letting amounts to a "business" for this relief is a question of fact HMRC scrutinises, so this is not a box-ticking exercise.

Extraction. Money inside a company is taxed again when you take it out, through dividend tax or salary. The retained-profit advantage above only holds while the profit stays in the company. A landlord who needs the rental income to live on may find the combined corporation-tax-plus-dividend-tax cost erodes much of the 42%-versus-19% gap.

Higher-rate landlord profile	Main pressure point	Lens to model first
Heavily geared, modest net profit	Section 24 add-back pushing total income over £50,270	Band test, and whether the add-back alone tips you higher-rate
Lower-geared, larger net profit	Flat 2 points on a bigger profit base	Income smoothing and deduction discipline
Growing portfolio, retaining profit	42% personal versus 19% to 25% corporation tax gap	Incorporation break-even (count SDLT, CGT and extraction)
Near retirement, selling down	42% on final-period rental income	Disposal timing, led by income tax not CGT
One higher-rate, one basic-rate spouse	All profit taxed at one band	Ownership split or Form 17 election

Disposal timing across the band boundary

If you are selling down, completing before 6 April 2027 keeps the final period of rental income from those properties out of the 42% schedule. That is a genuine income tax saving on the rental stream, but it is the only part of the disposal that the 2027 change touches. Capital gains tax on the sale is entirely separate and unchanged: 18% and 24% residential rates with a £3,000 annual exempt amount, untouched by Finance Act 2026.

The mistake to avoid is letting the tax tail wag the dog. A few months of rental income taxed at 42% rather than 40% is a small number against the gain on a property held for years. Let the disposal be driven by your investment plan and the CGT position; treat the rate change on the final-period rents as a minor timing factor, not a reason to sell.

Income smoothing across £50,270

Because property income now sits in its own schedule with a hard threshold, there is real value in managing total income around the £50,270 line, especially if your other income fluctuates year to year.

Three levers do most of the work. Timing major deductible repairs or improvements into a higher-income year suppresses taxable profit when you need it most, potentially keeping the top slice out of the 42% band. Personal pension contributions extend your basic-rate band by the gross amount paid, pulling profit back from 42% to 22%. And for couples, shifting part-ownership to a basic-rate spouse through a Form 17 election moves profit into a lower band entirely. If your income runs higher still, the next cliff up is the personal-allowance taper between £100,000 and £125,140, where the effective rate reaches 60%, covered in Section 24 and the 60% tax trap.

Why a £1,000 deduction is worth £420 to you

Deduction discipline pays more at 42% than it ever did. A £1,000 deductible cost reduces taxable profit by £1,000, which saves £420 at the higher property rate from 2027/28, up from £400 at 40% today, and against £220 for a basic-rate landlord at 22%. The higher your marginal rate, the more an overlooked expense costs you.

The costs most often missed sit in the same places every year:

• Professional and accountancy fees for the rental business
• Travel to inspect, manage or maintain properties
• A reasonable proportion of home-office costs if you self-manage
• Landlord insurance and safety-compliance costs (gas, electrical, EPC works)
• Replacement of domestic items relief on furnishings

For the comprehensive list, see our complete list of landlord tax deductions for 2026.

Compliance: MTD and your higher-rate exposure

The 2027 rates land in the middle of the Making Tax Digital for Income Tax rollout. The thresholds are based on qualifying income (gross rents plus any trading income), not profit: £50,000 from 6 April 2026, £30,000 from 6 April 2027 and £20,000 from 6 April 2028. Joint owners test their own share of the rents, and companies are outside MTD for Income Tax entirely.

The higher your liability, the more accurate digital records matter, because penalties and interest scale with the tax at stake. A higher-rate landlord paying 42% on the top slice has more to lose from a late or inaccurate quarterly update than a basic-rate landlord. See our Making Tax Digital for landlords deadline guide for the full timeline.

Getting it right for your band

The 42% rate does not change what good planning looks like; it raises the stakes on getting it right. The questions worth modelling are whether incorporation clears its transfer costs for your portfolio, whether a disposal is better completed before April 2027, whether pension contributions or an ownership split keep you under £50,270, and whether you are capturing every deduction now that each one is worth £420 rather than £400. None of these has a single right answer, because they all turn on your other income, your gearing and your plans for the portfolio.

Key takeaways

• From 6 April 2027 property profit above £50,270 is taxed at 42% under Finance Act 2026 (c.11) section 7, enacted law across England, Wales and Northern Ireland (Scotland excluded).
• The 42% rate is marginal: only profit above the threshold is taxed at 42%, with the rest at the 22% property basic rate.
• The Section 24 credit rises to 22% in step, so the higher-rate wedge stays at 20 points and the real increase is a flat 2% of net profit after finance costs.
• Incorporation is sharper for higher-rate landlords (42% versus 19% to 25%) but carries SDLT (5% surcharge plus a possible 17% flat charge over £500,000), CGT on transfer and dividend tax on extraction.
• Income smoothing, pension contributions and deduction discipline matter more at 42%, and a £1,000 deduction is now worth £420 to you.