From 6 April 2027, HM Revenue and Customs is changing the order in which the Personal Allowance is applied across different income types, and landlords are set to feel the impact directly. Alongside a new, higher tax band specifically for property income, this reordering removes a long standing flexibility that many landlords have relied on to manage their tax bills. This guide explains what is changing, why it matters, and how landlords should prepare from an accounting and tax planning perspective.
What Is Changing From April 2027
Currently, taxpayers can effectively allocate their £12,570 Personal Allowance across employment, pension, property, savings, and dividend income in whichever way results in the lowest tax bill. From the 2027 to 2028 tax year, this flexibility disappears. HMRC will require the allowance to be set against income in a fixed order, applied first to employment income, then self employment income, then pension income, and only afterwards to property income, savings income, and dividends.
In practice, this means landlords with any meaningful salary, self employment profit, or pension income will find their Personal Allowance fully absorbed before it ever reaches their rental profits. A landlord earning £20,000 in employment income and £10,000 in rental income, for example, will have the entire allowance used against the salary, leaving all £10,000 of rental profit taxable from the very first pound.
New Property Income Tax Rates
Compounding the allowance restriction, the government is introducing a dedicated, higher rate band solely for property and savings income from April 2027, running 2 percentage points above the standard rates.
| Tax band | Current rate (income tax) | New property income rate from April 2027 |
|---|---|---|
| Basic rate | 20% | 22% ormerodrutter+1 |
| Higher rate | 40% | 42% ormerodrutter+1 |
| Additional rate | 45% | 47% ormerodrutter+1 |
The Personal Allowance itself is not changing in value. It remains frozen at £12,570 and this freeze on thresholds has now been extended to 2031, but what changes is the order in which it is used. Property, savings, and dividend income will only benefit from any allowance left over once employment, trading, and pension income have absorbed their share.
Why Landlords Lose Flexibility
The current system allows landlords, particularly those with modest or no employment income, to shelter their rental profits within the tax free allowance where possible. Removing that choice has several practical consequences.
- Landlords with a salary, pension, or self employment income above £12,570 will lose the allowance against their rental profits entirely, since it will already be used up elsewhere.
- Retired landlords who rely on rental income as a primary source may be less affected, since pension income only ranks above property in the new order, but many will still see some erosion depending on total income mix.
- Landlords already tipping into the £100,000 to £125,140 band face a double hit, since the allowance taper there combines with the new ordering rules and the higher property rates.
- Non resident landlords are also affected, as the withholding rate under the Non Resident Landlord Scheme rises from 20% to 22%, and personal allowance eligibility for non residents remains conditional.
- Section 24 mortgage interest restrictions still apply on top of these changes, meaning finance costs continue to be relieved only as a basic rate tax credit rather than a full deduction, further squeezing net returns.
Worked Example
Consider a landlord with £27,430 in salary after allowance and £15,000 in gross rental profit, whose total income crosses into the higher rate band. Under the 2027/28 rules, tax is calculated as follows: 0% on the first £12,570 of salary, 20% on the remaining salary up to the basic rate threshold, then 22% on rental profit falling within the basic rate band, and 42% on any rental profit that spills into the higher rate band. Because the allowance is consumed entirely by salary, none of it reduces the rental profit, and the whole £15,000 is taxed at the new higher property rates rather than benefiting from any tax free slice.
Who Is Most Affected
Landlords with a mix of income sources, particularly those combining employment or pension income with a smaller buy to let portfolio, will generally see the largest relative increase in tax, since their allowance is now diverted away from property profits altogether. Portfolio landlords operating through a limited company are not subject to these personal income tax changes, since company profits are taxed under Corporation Tax rules instead, making incorporation a more attractive comparison point for some investors.
Planning Considerations
Landlords should review their income structure well before April 2027 to understand how the new ordering rules and higher rates will affect their specific position. Reviewing whether a limited company structure, pension contributions to reduce total taxable income, or restructuring ownership between spouses to use both allowances more efficiently could reduce the impact is worthwhile, since each option carries its own tax and administrative trade offs. Making Tax Digital for Income Tax is also being phased in around the same period, adding a further compliance layer that landlords will need to plan around alongside these rate and allowance changes.
How UK Property Tax Accountants Can Help
Managing the 2027 allowance reordering and new property tax rates requires proactive planning rather than a wait and see approach. Our team at UK Property Tax Accountants specialises in landlord specific tax strategy and can help you protect your rental profits well ahead of these changes.
- Reviewing your full income mix to calculate exactly how much of your Personal Allowance will be absorbed by employment, pension, or trading income from 2027 onward.
- Modelling your expected tax liability under the new 22%, 42%, and 47% property rates so you know your true after tax return.
- Advising on whether incorporating your portfolio into a limited company structure makes sense given your specific circumstances.
- Structuring joint ownership between spouses or partners to make the most efficient use of both parties Personal Allowances and tax bands.
- Reviewing pension contributions and other reliefs that can reduce your total taxable income and preserve allowance for property profits.
- Preparing you for Making Tax Digital for Income Tax compliance alongside these rate changes, so reporting deadlines do not catch you off guard.
- Providing ongoing tax planning reviews so your structure adapts as further threshold freezes or rate changes are announced.
Frequently Asked Questions
Does the Personal Allowance amount change in 2027?
No, the allowance remains at £12,570. What changes is the order in which it is applied across different income types.
Will all landlords pay more tax from April 2027?
Most landlords with other income sources such as salary or pension will see their rental profits taxed more heavily, though the exact impact depends on total income levels and portfolio structure.
Are limited company landlords affected by these changes?
No, these income tax changes apply to individual landlords. Companies continue to pay Corporation Tax on rental profits rather than personal income tax rates.
What are the new property income tax rates?
From April 2027, property income basic rate rises to 22%, higher rate to 42%, and additional rate to 47%, each 2 percentage points above standard income tax rates.
Does this affect non resident landlords too?
Yes, the Non Resident Landlord Scheme withholding rate also rises from 20% to 22%, and personal allowance access for non residents remains conditional on residency status.
Can landlords do anything to reduce the impact before 2027?
Yes, reviewing ownership structure, incorporation options, pension contributions, and overall income mix ahead of the change can help reduce exposure to the new rules.
