Finance Bill 2025-26 briefing: Property income tax rate changes

The ATT has produced a Finance Bill 2025-26 briefing on the proposed changes to property income tax rates and restricted finance costs relief and the impact on devolved taxes.

Clauses 6, 7 & 8 of the Finance Bill introduce new basic, higher and additional tax rates for income tax on property income from 2027/28, at 22%, 42% and 47% respectively. These clauses also extend the devolved powers of the Scottish Parliament and Welsh Senedd to permit them to introduce their own tax rates for property income. 

Finance costs for a loan related to residential lets (such as mortgage interest) are not deductible from rental profit for tax purposes. Instead, they are treated as a tax reducer based on the UK basic rate of income tax. This has led to anomalies where the devolved income tax rates and bands do not match those in the rest of the UK. The proposed changes in the Finance Bill could further exacerbate this issue. 

This change provides an opportunity to address the current situation, and to avoid future anomalies and inequities caused by tax being charged at a devolved basic rate of tax, but the reducer given at a different basic rate. The ATT recommends that consideration is given to alternative relief calculations for Scottish and Welsh taxpayers, from 2026/27 if possible, but at the latest from 2027/28.

Please see our full Finance Bill briefing for further details.