Property income rates 2027

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Property income is any money you earn from letting out land or buildings. This includes renting out a flat, a house, or even a parking space.

How it is taxed depends on how much you earn and the specific allowances you use. Generally, if your property income is very low (under £1,000), you do not need to report it to HMRC, and it is completely tax-free. If you earn more than that, you must report it, but there are reliefs available to lower your tax bill.

From April 2027, the way this income is taxed is changing significantly with the introduction of new, separate tax rates.

New Tax Rates for 2027

Starting in the 2027 to 2028 tax year, property income will no longer be taxed at the same rates as your job or pension income. Instead, specific “Property Rates” will apply.

The new rates will be:

• Property Basic Rate: 22%
• Property Higher Rate: 42%
• Property Additional Rate: 47%

These rates will apply to taxpayers in England, Wales, and Northern Ireland. The government is currently talking with the devolved governments in Scotland and Wales to decide how they might set their own property rates in the future.

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Allowances and Reliefs

You can reduce the amount of tax you pay by using government allowances.

1. The £1,000 Property Allowance If your annual gross property income is £1,000 or less, it is tax-free, and you do not need to tell HMRC.

If you earn more than £1,000, you have a choice:

• You can deduct the tax-free £1,000 property allowance from your income; OR
• You can deduct your actual expenses (like repairs or agent fees).

You cannot do both, so it is best to calculate which option saves you more money.

2. Rent a Room Scheme If you rent out a furnished room in the home you live in, the threshold is much higher. You can earn up to £7,500 per year tax-free. If you share the income with someone else (like a spouse), the limit is £3,750 each.

3. Help with Mortgage Costs If you are a landlord with a mortgage, you cannot deduct the mortgage interest directly from your rental income to lower your profit. Instead, you get Finance Cost Relief (FCR).

Under the new rules, this relief will be calculated at the new property basic rate of 22%. This acts as a tax reducer to lower your final bill.

Summary

While over 90% of UK taxpayers do not have taxable property income, those who do need to be aware of these upcoming changes. The shift to separate rates in 2027 means landlords will need to budget for tax bills at 22%, 42%, or 47%, depending on their total income level.

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