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 3% SDLT surcharge applies to all second or subsequent residential property purchases.
On a £300,000 buy-to-let: standard SDLT £2,500 + surcharge £9,000 = £11,500 total SDLT.
Record-Keeping for Tax
HMRC expects: all rent received, all expenses with receipts, capital improvement records, tenancy agreements, mileage logs.
LetCompliance tracks monthly income and costs per property and adds a Tax & HMRC toolkit — the Section 24 mortgage-interest 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.
🧠 Free PDF — 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.