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, giving you and your accountant clean data at year-end.
🧠 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.