Buy-to-Let Tax Changes in 2026 — What Landlords Need to Know This Tax Year

The buy-to-let tax landscape in 2026

The last decade has been one of sustained government pressure on private landlords. A series of tax changes — some phased in gradually, others introduced more abruptly — have fundamentally changed the economics of residential property investment. In 2026, landlords are operating in the most restrictive tax environment in decades.

This guide covers the key changes and their practical implications.

Section 24 — the finance cost restriction

Section 24 of the Finance (No. 2) Act 2015 is the single most significant tax change for landlords since 2015. Fully in force since April 2020, it restricts the deductibility of mortgage interest and other finance costs for individual residential property landlords.

How it works

Before Section 24, landlords calculated their taxable profit like this:

Old system: Taxable profit = Rental income - Mortgage interest - Other allowable expenses

Under Section 24: New system: Tax is calculated on Rental income - Other allowable expenses (NOT mortgage interest). Then a 20% tax credit is applied for finance costs.

Impact on higher-rate taxpayers

For a basic rate taxpayer (20%), Section 24 is broadly neutral in cash terms — the 20% credit matches their old 20% deduction benefit. For higher-rate taxpayers (40%), the impact is severe:

Example:

• Rental income: £18,000/year
• Mortgage interest: £10,000/year
• Other expenses: £2,000/year
• Old taxable profit: £18,000 - £10,000 - £2,000 = £6,000 (at 40% = £2,400 tax)
• New taxable profit: £18,000 - £2,000 = £16,000 (at 40% = £6,400 tax, then minus 20% credit on £10,000 = £2,000 credit)
• New tax bill: £6,400 - £2,000 = £4,400 (vs £2,400 previously)

The landlord pays £2,000 more per year in tax on the same property. At higher mortgage rates, the position worsens further.

Section 24 does not apply to companies

Limited companies can still deduct mortgage interest as a business expense in full. This is the primary tax reason many new buy-to-let investors use a corporate structure. However, the decision is not straightforward — see the limited company section below.

SDLT surcharge — increased to 5% in October 2024

The Stamp Duty Land Tax (SDLT) additional dwelling surcharge was increased from 3% to 5% on 31 October 2024. This applies to:

• Second residential properties
• Buy-to-let properties
• Residential properties purchased through a company

The surcharge is added to each standard SDLT band:

Example — £300,000 buy-to-let purchase:

• Standard SDLT: £5,000
• BTL surcharge: £15,000 (5% of £300,000)
• Total SDLT: £20,000

This significantly reduces yield in the first years of ownership and extends the break-even period for new acquisitions.

Furnished Holiday Lettings — abolished April 2025

The Furnished Holiday Lettings (FHL) tax regime gave qualifying short-term rental properties significant tax advantages compared to standard residential letting:

• Capital allowances on furniture and fixtures
• Profits counted as earned income for pension contribution purposes
• Business Asset Disposal Relief (BADR) on sale — CGT at 10%
• Rollover relief and gift relief (business tax reliefs)

All of these advantages were abolished from 6 April 2025. FHL properties are now taxed identically to standard residential letting properties.

Impact on existing FHL owners

• Capital allowances claims on ongoing expenditure (new furniture, equipment) are no longer available — use the Replacement of Domestic Items relief instead (a straight-line replacement only).
• BADR on sale is no longer available — CGT is now at 18%/24% on any sale gain.
• Pension contribution relief based on FHL profits no longer applies.
• Transitional rules: capital allowances claimed in pre-2025 years can continue to be written down in the pool, but no new additions are eligible.

Capital Gains Tax on residential property — 18%/24%

In October 2024, the CGT rates on all assets (not just residential property) were increased. For residential property:

The Annual Exempt Amount for CGT is £3,000 in 2026/27 (reduced from £12,300 in 2022/23).

Residential property CGT does not qualify for Business Asset Disposal Relief (BADR) — so the 10% BADR rate is unavailable on buy-to-let sales, regardless of how long you have owned the property.

Calculating the gain

Gain = Sale proceeds - Cost basis - Allowable costs

Allowable costs include:

• Purchase price
• Stamp duty paid on purchase
• Legal fees on purchase and sale
• Estate agent fees on sale
• Costs of capital improvements (not maintenance/repairs)

You cannot deduct mortgage interest from the capital gain — finance costs are income tax matters, not CGT.

The 60-day CGT reporting rule

Since 6 April 2020, you must report and pay any CGT on UK residential property within 60 days of completion using HMRC's UK Property Reporting Service (at gov.uk/report-and-pay-capital-gains-tax).

This applies even if you are already registered for Self Assessment. You cannot wait until your annual tax return — the 60-day clock starts from completion, not exchange.

Penalties for late reporting

If there is no gain (or the gain is within the Annual Exempt Amount), reporting is not required.

ATED — Annual Tax on Enveloped Dwellings

If a residential property worth over £500,000 is held through a company, ATED applies:

An ATED relief is available for properties that are commercially let to third parties — meaning most standard buy-to-let properties held in a company are not charged, but the relief must be claimed each year.

Limited company buy-to-let — pros and cons in 2026

The debate about corporate ownership continues. Here is a balanced assessment for 2026:

Advantages

• Mortgage interest is fully deductible from rental profit — Section 24 does not apply.
• Profits retained in the company are taxed at 19% (small profits rate) rather than 40%/45%.
• Easier to accumulate and reinvest profits within the company structure.
• Company borrowing may be more flexible for portfolio landlords.

Disadvantages

• Higher mortgage rates — buy-to-let company mortgages typically carry a 0.5-1.5% rate premium over personal mortgages.
• Extraction costs — taking money out as salary or dividends incurs additional personal tax.
• Transferring existing personally-held properties to a company triggers SDLT (at the BTL rate) and CGT — rarely worth it for properties already owned.
• Accountancy costs are higher for a limited company.
• Capital allowances for residential property are generally not available in any structure (only for commercial property within mixed use or HMO situations).

Is a limited company right for you?

The company route is most beneficial for landlords who:

• Are higher-rate or additional-rate taxpayers
• Can hold properties long-term in the company without needing to extract all profits
• Are making new purchases (not transferring existing stock)
• Have a long investment horizon where the rate premium on company mortgages can be absorbed

For a single property or a landlord planning to sell within 5 years, the additional costs and complexity often outweigh the tax savings.

Making Tax Digital for landlords

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will require landlords to:

• Keep digital records of rental income and expenses
• Submit quarterly updates to HMRC
• File an end-of-period statement and final declaration

Timeline:

• April 2026: landlords with gross rental income over £50,000
• April 2027: landlords with gross rental income over £30,000
• Future date TBC: landlords with income over £20,000

MTD-compatible software will be required. Landlords currently using spreadsheets will need to upgrade to software that can submit directly to HMRC's API.

Related calculators

The mortgage calculator helps you model monthly mortgage costs and compare interest-only vs repayment structures for buy-to-let.

The income tax calculator lets you calculate the tax impact of Section 24 on your rental profits across different income levels.