Buy-to-Let Tax UK 2026: CGT & Section 24

Buy-to-Let Tax Has Changed Dramatically

If you own a buy-to-let, you're probably paying more tax on the same rent than you did a decade ago. Since 2017 the mortgage interest restriction (Section 24), a smaller CGT allowance and the stamp duty (SDLT) surcharge have all moved against landlords. This guide takes each tax in turn, with worked figures, and covers what changes next.

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:

• Old system: £5,000 taxable profit → 40% tax = £2,000
• New system: £15,000 taxable profit → 40% tax = £6,000 − £2,000 credit = £4,000 net

For many higher-rate taxpayers that doubles the bill, and it's the main reason landlords are moving property 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:

• Basic rate taxpayer: 18%
• Higher/additional rate: 24%
• Annual exempt amount: £3,000

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 isn't a rate. It's 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. That's easy if your income and expenses are recorded and categorised as you go, and miserable 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 keeps the money side of the let as it happens: the rent ledger records each payment, receipts are filed against the property, and you see profit and loss per property through the year. At year end the SA105 tax pack sets the figures out for your return, and the Section 24 calculator shows what the mortgage interest restriction costs you. If you're in MTD, it sends your quarterly updates to HMRC (it's recognised by HMRC for this). You or your accountant still file the final return. Start in the first month and there's nothing to reconstruct in January.

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:

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 isn't a rate. It's a workload.

• From April 2026: landlords with gross property (plus self-employment) income above £50,000 are in MTD for Income Tax. This is live now.
• From April 2027: the threshold drops to £30,000.
• From April 2028: it drops again to £20,000.

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:

• Property income allowance, £1,000. If gross property income is £1,000 or less you usually need not declare it. Above that you can deduct the £1,000 instead of actual expenses, but not both. For a real let with real costs, actual expenses almost always win.
• Replacement of Domestic Items Relief. The cost of replacing beds, sofas, carpets, curtains and white goods is deductible. The first provision of an item is not, and if you upgrade, only the cost of a like-for-like replacement qualifies.
• Mileage, 55p per mile for the first 10,000 business miles from 6 April 2026 (45p before that) and 25p after. You claim mileage or actual vehicle running costs, not both, and you need a journey log.
• The repair-versus-improvement line. Restoring the property is a revenue expense you deduct now. Improving it beyond its original state is capital, deducted against CGT when you sell. Label every significant spend at the time, because reconstructing it later is where deductions are lost.

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, and the Section 24 credit rises to 22% of the interest, or £2,068. Net tax, £7,382. Around £262 more for identical rent.

Her gross property income of £28,800 keeps her under the £50,000 MTD threshold for April 2026, and under the £30,000 threshold from April 2027 too. The drop to £20,000 in April 2028 is what brings her in. That, not the £262, 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, there is an honest look at whether being a landlord is still worth it and at what rents actually did this year in the ONS-based UK rent statistics.

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. The rental income tax calculator and Section 24 guide work through the numbers, and the MTD guide covers the quarterly regime.