Buy-to-Let Tax UK 2026/27 — Complete Landlord Guide
Section 24 · Income tax on rental profits · CGT 18%/24% · Stamp duty surcharge 5% · Updated May 2026
Section 24: the mortgage interest restriction
The most significant change in buy-to-let taxation in a generation: since April 2020, landlords can no longer deduct mortgage interest and other finance costs as an allowable expense against rental income. Instead, you receive a 20% tax credit on your total finance costs.
Critical for higher rate taxpayers: Under the old system a higher rate taxpayer paying £10,000/yr in mortgage interest could offset £4,000 in tax (40% relief). Under Section 24, the same landlord gets a £2,000 tax credit (20%) — a £2,000/yr increase in their tax bill. Some landlords now pay tax on notional profits they haven't actually received.
How Section 24 works — worked example
Pre-2020 (old rules)
2026/27 (Section 24)
Annual rental income
£18,000
£18,000
Mortgage interest
£12,000
£12,000
Other expenses
£2,000
£2,000
Taxable rental profit
£4,000 (income - all expenses)
£16,000 (income - non-finance expenses)
Income tax at 40% higher rate
£1,600
£6,400
Less: 20% finance cost credit
—
−£2,400 (20% × £12,000)
Tax liability
£1,600
£4,000
Net cash after mortgage & tax
£2,400
£0
In this example, a highly leveraged property now produces no net cash after tax for a higher rate taxpayer — even though it was generating positive cash flow before Section 24.
Income tax on rental profits
Rental income is added to your other income and taxed at your marginal income tax rate. It is not subject to National Insurance.
Total income (salary + rental profit)
Tax rate on rental profit
Up to £12,570 (Personal Allowance)
0%
£12,571–£50,270
20%
£50,271–£125,140
40%
Over £125,140
45%
Rental income is declared on a Self Assessment tax return. You must register with HMRC and file annually if your gross rental income exceeds £1,000 (the property income allowance). If your rental income is between £1,000 and £2,500, HMRC may collect tax through your PAYE code.
Property income allowance: If your total rental income is £1,000 or less in the tax year, it is completely tax-free and you don't need to declare it. Between £1,000 and £2,500, you can either claim the £1,000 allowance (simplest) or deduct actual expenses — whichever is more beneficial.
Allowable expenses
These costs can be deducted from rental income to calculate your taxable rental profit:
Letting agent fees and management fees
Repairs and maintenance (but not improvements — those are capital expenditure)
Buildings and contents insurance
Ground rent and service charges
Accountancy and legal fees relating to the tenancy
Council tax (when property is vacant between tenancies)
Water rates, gas, electricity (when paid by landlord)
Replacement of domestic items (furniture, appliances) — under the Replacement of Domestic Items Relief
Capital vs revenue: Only revenue expenditure (repairs, maintenance) is deductible from rental income. Capital improvements (extensions, loft conversions, adding a bathroom) are added to the property's base cost for CGT purposes when you eventually sell, reducing your taxable gain.
Stamp duty surcharge (5% from October 2024)
From 31 October 2024, purchasers of additional residential properties pay a 5% surcharge on top of standard Stamp Duty Land Tax (SDLT) rates — increased from the previous 3% surcharge. This applies to buy-to-let purchases, second homes, and holiday properties.
Property value
Standard SDLT
+5% surcharge
Total SDLT (buy-to-let)
Up to £125,000
0%
5%
5%
£125,001–£250,000
2%
5%
7%
£250,001–£925,000
5%
5%
10%
£925,001–£1.5m
10%
5%
15%
Over £1.5m
12%
5%
17%
Example: A £250,000 buy-to-let purchase incurs SDLT of: 5% × £125,000 = £6,250 (first band) + 7% × £125,000 = £8,750 (second band) = £15,000 total SDLT. Compare this to a first-time buyer on the same property (0% to £300,000 threshold) paying nothing.
When you sell a buy-to-let property, the gain is subject to Capital Gains Tax (CGT). For residential property:
Your tax band
CGT rate on residential property
Basic rate (gains within basic rate band)
18%
Higher or additional rate (or gains above basic rate band)
24%
How CGT on property is calculated
Gain = Sale price − purchase price − allowable costs (stamp duty, legal fees, improvement costs)
Annual CGT exemption = £3,000 (2026/27) — first £3,000 of gains is tax-free
Taxable gain is added on top of your income to determine which rate applies
You must report and pay CGT on property within 60 days of completion using HMRC's UK Property Account
60-day reporting deadline: Since April 2020, you must report and pay any CGT owed on UK residential property within 60 days of the sale completing. Missing this deadline incurs automatic late-filing penalties of £100–£1,600 plus daily penalties. File immediately after completion, not at the end of the tax year.
Many landlords, especially those purchasing new properties, now use a limited company (SPV — Special Purpose Vehicle) structure. The main reason: mortgage interest is fully deductible as a business expense for companies, and profits are taxed at Corporation Tax rates rather than income tax rates.
Feature
Personal ownership
Limited company
Mortgage interest deduction
20% tax credit only (Section 24)
Fully deductible before CT
Tax on rental profit
20–45% income tax
19–25% Corporation Tax
CGT on sale
18%/24%
No CGT — CT on gains; then CT on extraction
Mortgage availability
Wide choice, lower rates
Fewer lenders, higher rates
Administration
Self Assessment only
Company accounts, CT600, payroll
Best for
Lower rate taxpayers, small portfolios
Higher rate taxpayers, growing portfolios
Transferring existing personally-held properties into a company triggers a CGT disposal at market value — meaning significant tax on any gains accumulated to date. A company structure is most efficient for new purchases.
Furnished holiday lets — abolished April 2025
The Furnished Holiday Lettings (FHL) tax regime was abolished from 6 April 2025. Properties previously qualifying as FHLs are now taxed the same as ordinary residential lets — including the Section 24 mortgage interest restriction applying from April 2025, loss of capital allowances for furniture and equipment, and dividends/extraction changes for those operating through companies.
If you own a former FHL property, you should review your tax position for the 2025/26 tax year onward, as the removal of FHL status can significantly increase your tax liability.
Frequently asked questions
No — since April 2020, landlords can no longer deduct mortgage interest as an expense from rental income. Instead you receive a 20% tax credit on your total finance costs (Section 24). Higher rate taxpayers get 20p back per £1 of interest paid rather than the 40p relief that applied before 2017. Basic rate taxpayers are unaffected in net terms.
Capital gains on residential property are taxed at 18% if the gain (added to your income) falls within the basic rate band, or 24% on gains that push into higher rate territory. The annual CGT exemption is £3,000. You must report and pay within 60 days of completion via HMRC's UK Property Account.
From 31 October 2024, an additional 5% surcharge applies to purchases of additional residential properties (increased from 3%). This 5% is added on top of all standard SDLT bands. On a £250,000 buy-to-let purchase the total SDLT is £15,000 — compared to £0 for a qualifying first-time buyer on the same price.
For higher rate taxpayers purchasing new properties, a limited company can be significantly more tax efficient: mortgage interest is fully deductible, and profits are taxed at 19–25% CT rather than 40–45% income tax. Trade-offs include fewer mortgage lenders, higher mortgage rates, company administration costs, and double taxation on extraction. For existing personally-held portfolios, transferring triggers CGT — seek specialist advice before restructuring.