The current tax position for UK landlords
Buy to let taxation has undergone substantial reform since 2016, and the cumulative effect of these changes has fundamentally altered the financial equation for many landlords. Understanding where things stand in 2026 is essential for making informed investment decisions and structuring your property portfolio correctly.
The key taxes affecting BTL landlords include income tax on rental profits, capital gains tax on disposal, stamp duty land tax on acquisition (including the additional homes surcharge), and potentially corporation tax if you operate through a limited company. Each of these has seen changes in recent years.
Mortgage interest tax relief: the Section 24 position
The most significant tax change for landlords in the past decade was Section 24 of the Finance Act 2015, which phased out the ability for individual landlords to deduct mortgage interest as an expense. Fully implemented since April 2020, the current position is:
- Individual landlords cannot deduct mortgage interest from their rental income
- Instead, they receive a basic-rate tax credit of 20% on their mortgage interest payments
- This means higher-rate taxpayers (40%) and additional-rate taxpayers (45%) pay significantly more tax on their rental profits than before
- The change can also push basic-rate taxpayers into the higher-rate bracket because gross rental income (before the interest credit) is used to determine their tax band
For landlords with significant mortgage debt and higher personal incomes, this remains the single biggest tax burden. Many have responded by purchasing new properties through limited company structures, which are unaffected by Section 24 and can still deduct mortgage interest in full.
The stamp duty surcharge: now 5%
The additional stamp duty surcharge for purchasing second homes and buy to let properties was increased from 3% to 5% in the Autumn Budget 2024, applying to completions from 31 October 2024 onwards. This surcharge is added on top of the standard SDLT rates and applies to the entire purchase price.
For a buy to let property costing £250,000, the total SDLT bill including the 5% surcharge now stands at significantly more than it would have been even two years ago. This additional upfront cost reduces your initial yield and extends the payback period on your investment.
Important: The 5% surcharge applies regardless of whether you are buying as an individual or through a limited company. There is no way to avoid it on additional property purchases.
Capital gains tax on BTL disposals
When you sell a buy to let property, any profit above your annual exempt amount is subject to capital gains tax. The key rates and rules for 2026 are:
- CGT rates on residential property — 18% for basic-rate taxpayers and 24% for higher-rate taxpayers (increased from 28% previously, then adjusted)
- Annual exempt amount — Reduced to £3,000 per person, down from £12,300 just a few years ago
- Reporting and payment deadline — You must report the disposal and pay CGT within 60 days of completion
- Allowable deductions — Purchase costs, improvement costs (not maintenance), and selling costs can be deducted from the gain
The dramatic reduction in the annual exempt amount means virtually all BTL disposals will now trigger a CGT liability. Married couples and civil partners each have their own allowance, so joint ownership can provide some relief.
Income tax on rental profits
Rental income from buy to let properties is subject to income tax at your marginal rate. You can deduct allowable expenses including:
- Letting agent fees and management costs
- Insurance premiums (landlord insurance, buildings insurance)
- Maintenance and repairs (but not improvements)
- Ground rent and service charges
- Accountancy fees
- Travel costs for property management (limited since the restriction on travel to individual properties)
The property income allowance of £1,000 remains available as an alternative to deducting actual expenses. If your total property income before expenses is under £1,000, you do not need to report it. If over £1,000, you can choose to deduct the £1,000 allowance instead of actual expenses, though this is rarely beneficial for mortgaged properties.
Making Tax Digital for landlords
Making Tax Digital (MTD) for income tax self-assessment is being extended to landlords. From April 2026, landlords with property income over £50,000 will be required to keep digital records and submit quarterly updates to HMRC. From April 2027, this threshold drops to £30,000. This represents a significant change in how landlords manage their tax affairs and will require compatible software.
Tip: Start keeping digital records now, even before MTD becomes mandatory for you. Getting your systems in place early avoids a last-minute scramble and ensures you have clean data from the start.
Limited company vs personal ownership: the 2026 tax comparison
The tax differences between personal and company ownership have become even more pronounced in 2026:
Personal ownership
- Rental profits taxed at income tax rates (20%, 40%, or 45%)
- No mortgage interest deduction — only 20% basic-rate tax credit
- CGT at 18% or 24% on disposal (above £3,000 annual exempt amount)
- 5% SDLT surcharge on purchase
Limited company ownership
- Rental profits taxed at corporation tax (19% to 25%)
- Full mortgage interest deduction allowed
- No CGT on disposal — company pays corporation tax on the gain
- 5% SDLT surcharge still applies on purchase
- Additional tax when extracting profits (dividend tax)
- Running costs (accountancy, compliance)
The right structure depends on your marginal tax rate, mortgage levels, and whether you need to extract profits or can reinvest them. A specialist buy to let mortgage broker can help you understand the mortgage implications, while a tax adviser can model the overall tax position.
Planning ahead: what landlords should do now
Given the current tax environment, proactive planning is more important than ever for BTL investors:
- Review your ownership structure — For new purchases, consider whether a limited company (SPV) is more tax-efficient
- Maximise allowable expenses — Ensure you are claiming every deductible expense against your rental income
- Plan disposals carefully — Use the annual CGT exemption, consider timing of sales across tax years, and explore spouse transfers
- Prepare for MTD — Set up digital record-keeping if your rental income exceeds the upcoming thresholds
- Take professional advice — The interaction between different taxes and structures is complex, and the right strategy for one landlord may be wrong for another
Get expert guidance
Navigating the BTL tax landscape requires both a good accountant and the right mortgage structure. Nesto can match you with experienced buy to let mortgage brokers who understand how tax changes affect your financing options. Get Matched Free to speak with a specialist today.