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.
| 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.
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.
These costs can be deducted from rental income to calculate your taxable rental profit:
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% |
| Amount | |
|---|---|
| Sale price | £350,000 |
| Less: purchase price (2015) | −£180,000 |
| Less: improvement costs | −£20,000 |
| Less: purchase/sale costs (stamp duty, legal fees) | −£8,000 |
| Gross gain | £142,000 |
| Less: annual CGT exemption | −£3,000 |
| Taxable gain | £139,000 |
| CGT at 24% (higher rate landlord) | £33,360 |
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.
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.
Sources. The statutory and regulatory figures on this page are checked against GOV.UK: Restricting finance cost relief for individual landlords, GOV.UK: Renting out a property — paying tax, GOV.UK: Capital Gains Tax rates and GOV.UK: SDLT residential property rates. Last checked 2 September 2026; figures apply to the 2026/27 tax year unless a different period is stated.