Don’t be fooled by the “2% tax rise.” Once the mechanics of Section 24 are fully applied, that seemingly minor headline increase announced in the 2025 Budget will translate into a substantial drop in real cashflow for a typical mortgaged property portfolio.

We modeled the numbers on a higher-rate taxpayer owning an eight-property portfolio, and the results are eye-opening. If you want to understand what the 2027 tax changes truly mean for your finances, this analysis is essential reading.

Background: The 2027 Tax Rate Changes

The 2025 Budget confirmed that, from April 2027, property income (alongside dividends and savings income) will be subject to higher tax rates:

• Basic Rate: Rises from $20\%$ to $22\%$

• Higher Rate: Rises from $40\%$ to $42\%$

• Additional Rate: Rises from $45\%$ to $47\%$

While a two-percentage-point rise appears modest, its interaction with Section 24 (the restriction on mortgage interest relief) significantly amplifies the impact. For individual landlords, tax is calculated on an inflated “taxable profit” figure that ignores mortgage interest. A separate tax credit is then provided. This structure means even a small rise in the headline rate can lead to a dramatic reduction in spendable income.

Modelling Assumptions

The following consistent profile was used for this illustrative, worked example:

The Mechanics of Section 24 and the Rate Rise (One Property)

To understand the change, we must first calculate the cash position, then the taxable position under Section 24.

Step 1: Real Cash Position (Per Property)

Step 2: Taxable Profit Under Section 24

Under Section 24, mortgage interest is not deducted when calculating taxable profit. The taxable profit is simply the Cash Profit Before Interest: $\text{£}11,520$.

Step 3: Tax Payable (Updated to 22% Credit)

The updated analysis confirms that the Finance Cost Relief credit will increase to the new basic rate of $22\%$ from April 2027, not the original $20\%$.

Scaling the Example to an Eight-Property Portfolio

For the eight-property portfolio, the total real cash profit remains $\mathbf{\text{£}39,360.00}$ (Total Rent $\text{£}115,200$ minus Costs $\text{£}23,040$ minus Interest $\text{£}52,800$).

The tax figures are scaled up:

The Power of Incorporation: Personal vs. Limited Company

The example demonstrates that the true pain point for individual landlords is not the $2\%$ rate increase, but the mechanics of Section 24, which are avoided by corporate structures.

A Limited Company pays Corporation Tax (CT) on the real cash profit ($\text{£}39,360$), after deducting mortgage interest, leading to dramatically different outcomes:

What This Means for Landlords

The tax environment for leveraged individual landlords is becoming increasingly challenging. The landlord in this example, handling $\text{£}115,200$ in rent and nearly $\text{£}1$ million in debt, ends up with barely $\text{£}12,000$ of post-tax income.

This analysis forces landlords to consider a portfolio-wide strategy:

• Hold: Some units will remain strong performers and should be kept.

• Refinance/Restructure: Other units may benefit from different finance options or transferring ownership to a Limited Company structure.

• Sell: Some properties may become marginal or loss-making under the new rates and could be candidates for disposal.

While this illustration is generic, the framework is essential for making informed decisions based on numbers rather than guesswork before the 2027 changes take effect.

Disclaimer: This article and its associated calculations are for illustration and planning support only. Final tax positions and legal advice must always be confirmed with appropriately qualified professionals.