Buy-to-Let Tax Has Changed Dramatically
Since 2017, buy-to-let taxation has become far more complex. The removal of mortgage interest relief (Section 24), lower CGT allowances and SDLT surcharges mean many landlords pay substantially more tax than a decade ago.
Income Tax on Rental Profits
Taxable rental profit = rental income − allowable expenses
Allowable expenses: Letting agent fees, maintenance and repairs (not improvements), insurance, ground rent and service charges, accountant fees, advertising costs.
Not allowable: Capital improvements, personal expenses, your own unpaid labour.
Section 24: The Mortgage Interest Trap
Since 2020, mortgage interest cannot be deducted from rental income. Instead you get a 20% tax credit.
Example, £15,000 rent, £10,000 mortgage interest:
This doubles the tax bill for many higher-rate taxpayers, the main reason landlords are incorporating into limited companies.
Limited Company Buy-to-Let
A limited company avoids Section 24 entirely. It pays corporation tax (19 to 25%) and can deduct mortgage interest as a business expense.
Pros: Full mortgage interest deduction, lower effective rate, easier succession.
Cons: Higher mortgage rates, dividends taxed when extracted, higher accountancy costs.
Always get specialist tax advice before incorporating.
Capital Gains Tax on Sales
2026 CGT rates on residential property:
Deductible from gain: Purchase price, SDLT on purchase, legal fees, capital improvements, estate agent fees on sale.
SDLT Surcharge on Buy-to-Let Purchases
An additional 5% SDLT surcharge (raised from 3% on 31 October 2024) applies to all second or subsequent residential property purchases in England.
On a £300,000 buy-to-let the higher rates give £20,000 total SDLT (5% on the first £125,000, 7% on £125,000–£250,000, 10% on £250,000–£300,000). Always confirm current bands on GOV.UK before you complete.
Making Tax Digital: the big 2026 change
The most important 2026 change is not a rate — it is how you report. Making Tax Digital (MTD) for Income Tax began on 6 April 2026 for landlords whose qualifying income is over £50,000, dropping to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is your gross rent, before expenses, combined with any self-employment income.
If you are in scope, you must keep digital records and send HMRC a quarterly update plus a final declaration, instead of one annual Self Assessment. The real shift is that tax stops being a January scramble and becomes a running job, which is painless if your income and expenses are already digital and categorised as you go, and a nightmare if they live in a shoebox. See the full MTD guide for landlords, and if you hold property through a company, why MTD does not apply to limited companies.
Record-Keeping for Tax
HMRC expects: all rent received, all expenses with receipts, capital improvement records, tenancy agreements, mileage logs.
Before you commit to anything, it is worth seeing the actual number: the free rental income tax calculator shows your tax after Section 24 on your own figures, and the Section 24 guide explains the "phantom income" trap in full.
LetCompliance tracks monthly income and costs per property and adds a Tax & HMRC toolkit: a Section 24 calculator, an SA105-shaped tax pack and an MTD-ready quarterly summary, so you and your accountant get clean, export-ready data at year-end. We prepare and export; you or your accountant file. Get it right from the first month rather than reconstructing a year later.
The change most 2026 guides still miss: property income taxed two points higher
At Budget 2025 the government announced that income from property, savings and dividends will be taxed at higher rates than earned income. For landlords the effect is straightforward and it starts in April 2027:
| Band | General rate | Property rate from 2027/28 |
|---|---|---|
| Basic | 20% | 22% |
| Higher | 40% | 42% |
| Additional | 45% | 47% |
There is a second, quieter change alongside it. From April 2027 the income tax ordering rules alter so that your personal allowance is set against employment, trading or pension income first. For landlords with a salary and a portfolio, more of the rental profit ends up taxed at the property rate rather than being sheltered by the allowance.
What it means in cash. A higher-rate landlord with £20,000 of taxable rental profit pays £8,000 in 2026/27 at 40%. The same profit in 2027/28 is taxed at 42%, so £8,400. An extra £400 a year, before you account for the ordering change.
It is not catastrophic on its own. It is another two points on top of Section 24, and it is the reason incorporation modelling is worth redoing rather than relying on a calculation from 2023.
Making Tax Digital: the timetable that now applies
This is the operational change landlords underestimate, because it is not a rate, it is a workload.
In scope means keeping digital records and submitting quarterly updates to HMRC, then a final declaration after the tax year, instead of one annual Self Assessment return.
The threshold is on gross income, not profit. A landlord with £52,000 of rent and a big mortgage may have very little profit and still be in scope. Check the gross figure, not the bottom line.
The reliefs landlords routinely forget
Beyond the obvious agent fees and repairs, four are missed often enough to be worth listing:
Putting it together: a worked example
Ayesha owns two flats. Combined rent is £28,800 a year. Allowable expenses come to £6,300, and mortgage interest is £9,400. She earns £52,000 in her job, so she is a higher-rate taxpayer.
Taxable rental profit is £28,800 minus £6,300, which is £22,500. Note that the mortgage interest is not deducted here, which is Section 24 doing its work.
In 2026/27 the tax on that profit is £22,500 at 40%, or £9,000. She then gets the Section 24 credit of 20% of the £9,400 interest, which is £1,880. Net tax, £7,120.
In 2027/28 the same profit is taxed at the property rate of 42%, or £9,450, less the same £1,880 credit. Net tax, £7,570. Around £450 more for identical rent.
Her gross property income of £28,800 keeps her under the £50,000 MTD threshold for April 2026, but the drop to £30,000 in April 2027 will pull her in. That, not the £450, is the thing she needs to prepare for.
If you live abroad, the Non-Resident Landlord Scheme changes how the tax is collected rather than how much you owe, and it catches landlords who moved overseas without telling anyone. And if the numbers here are making you reconsider the whole proposition, we have looked honestly at whether being a landlord is still worth it and at what the market actually did this year in the UK landlord report.
None of this is tax advice. Rates and thresholds change at every fiscal event, so check the current position on GOV.UK or with an accountant before you act. Our rental income tax calculator and Section 24 guide work through the numbers, and the MTD guide covers the quarterly regime.
Allowable vs Capital Repair Decision Tree
The single line HMRC actually draws between an allowable repair and a capital improvement, with 24 worked examples for UK landlords.
- 24 real repair scenarios classified
- Repair-vs-capital decision tree (1-page A4)
- Replacement-of-domestic-items relief explained
- Self Assessment line mapping for SA105
Frequently asked questions
Can landlords still deduct mortgage interest from rental profit?
Individual landlords get a 20% tax credit on finance costs instead of full deduction (Section 24). Limited companies can usually deduct interest as a business expense, seek tax advice before restructuring.
What CGT rate applies to residential property in 2026?
Higher-rate taxpayers typically pay 24% on residential property gains (rates change with budgets). Keep records of purchase costs, fees and capital improvements to reduce the gain.
When do landlords have to start Making Tax Digital for Income Tax?
By gross property income, not profit — which is the detail most landlords get wrong. Above £50,000 from April 2026 (live now), above £30,000 from April 2027, above £20,000 from April 2028. In scope means digital records and quarterly updates to HMRC plus a final declaration, instead of one annual return. A landlord with £52,000 of rent and a large mortgage is in scope despite thin profits.
Is rental income taxed at a higher rate from 2027?
Yes. From April 2027 property income is taxed two percentage points above the general rates: 22% basic, 42% higher and 47% additional. A second change lands at the same time — the income tax ordering rules alter so your personal allowance is set against employment, trading or pension income first, which pushes more rental profit into the property rates. On £20,000 of taxable rental profit a higher-rate landlord pays roughly £400 more a year.
Should I put my buy-to-let in a limited company?
It depends far more on the entry cost than on the tax rate. Moving property you already own into a company is a sale at market value, triggering Capital Gains Tax (reported and paid within 60 days) and Stamp Duty Land Tax including the 5% additional-property surcharge — £15,000 on a £300,000 property before anything else. Companies deduct mortgage interest in full and escape Section 24, which suits landlords reinvesting rather than drawing an income, because extracting profit as dividends is taxed again. Model it with an accountant rather than from a rate comparison.