Pillar Guide · Updated June 2026
UK Buy-to-Let Tax Guide 2026/27
Being a landlord has become steadily more taxing — literally. A decade of reform has stripped away the mortgage interest deduction, raised stamp duty on additional property, tightened capital gains reporting and, from April 2025, abolished the favourable furnished holiday let regime. This guide brings the whole 2026/27 picture together: the Section 24 finance-cost restriction and its 20% credit, declaring rents on the SA105, the difference between allowable and capital expenses, the 5% SDLT surcharge, capital gains tax at 18% and 24% with its 60-day reporting deadline, the limited company versus personal ownership decision, replacement of domestic items relief, and the arrival of Making Tax Digital for landlords. A worked example pulls the numbers together.
Section 24: The Mortgage Interest Restriction
Section 24 is the single biggest change to landlord taxation in a generation. Individual landlords can no longer deduct mortgage interest from rental income before tax. Instead, you are taxed on the full rental profit, then given a basic-rate 20% tax credit for your finance costs.
For a basic-rate taxpayer the effect is broadly neutral — 20% relief either way. But a higher-rate (40%) or additional-rate (45%) landlord now gets relief at only 20%, well below their marginal rate. Worse, because the full rent counts as income before the credit, Section 24 can drag a landlord into a higher tax band, reduce the Personal Allowance above £100,000, or trigger the High Income Child Benefit Charge.
Companies are not subject to Section 24 — they still deduct interest in full — which is the main driver behind landlord incorporation. Quantify the impact with the Section 24 calculator.
Declaring Rental Income on the SA105
Rental profit is reported on the SA105 UK property pages of your Self Assessment return. You declare gross rents received, deduct allowable expenses to reach the taxable profit, and the 20% finance-cost credit is applied separately.
If your gross rents are below £1,000, the property allowance may cover them entirely with nothing to report. Above that, most landlords file an SA105. Where you have more than one UK rental, they are pooled into a single UK property business for tax purposes.
Use the buy-to-let calculator to project net profit, and the rental yield calculator to assess the return on a prospective purchase.
Allowable Expenses vs Capital Expenditure
The distinction between revenue (allowable) and capital expenditure decides whether a cost reduces your income tax now or your capital gains tax later.
| Allowable (deduct from rent) | Capital (adds to cost base) |
|---|---|
| Letting agent & management fees | The purchase price itself |
| Insurance, ground rent, service charges | Extensions and improvements |
| Repairs and maintenance | A new kitchen of a higher standard |
| Accountancy, advertising for tenants | Legal & survey fees on purchase |
The classic grey area is repairs versus improvements: replacing a broken boiler with a similar one is a deductible repair; converting a loft is a capital improvement. Mortgage interest sits outside this table entirely — it attracts only the 20% Section 24 credit.
The 5% SDLT Surcharge
Buying an additional residential property in England or Northern Ireland — including any buy-to-let — triggers a Stamp Duty Land Tax surcharge on top of the standard rates. The surcharge rose to 5% from 31 October 2024, applied to the whole purchase price above the relevant threshold.
On a £250,000 buy-to-let, that surcharge alone is £12,500, in addition to the standard SDLT. Scotland charges its own Additional Dwelling Supplement under LBTT, and Wales applies higher residential rates of LTT. The surcharge materially raises the cost of building a portfolio and should always be factored into the yield calculation.
Estimate the full bill, including the surcharge, with the stamp duty calculator.
Capital Gains Tax on Sale and 60-Day Reporting
When you sell a buy-to-let at a profit, capital gains tax applies on the gain after deducting the purchase price, buying and selling costs, and capital improvements, less the £3,000 annual exempt amount.
For residential property in 2026/27, the rates are 18% for gains falling within your basic-rate band and 24% above it. Critically, you must report the disposal and pay the tax within 60 days of completionusing HMRC's online UK Property service — a separate deadline from your annual return, and one that carries penalties if missed.
Private residence relief and letting relief are generally available only if the property was once your main home. For pure buy-to-lets that were never your residence, the full gain is taxable.
Limited Company vs Personal Ownership
The Section 24 restriction has made incorporation attractive for many landlords, but it is not universally better.
- Company advantages: no Section 24 — mortgage interest is fully deductible; profit taxed at 19%–25% corporation tax; easier to retain and reinvest profit; flexible succession planning.
- Company drawbacks: higher mortgage rates and arrangement fees; double taxation when extracting profit as dividends; SDLT and CGT triggered when transferring existing personal property into a company; extra accountancy and filing costs.
The crossover generally favours higher-rate taxpayers building a larger, geared portfolio for the long term, where the interest deduction and profit retention outweigh the extra costs. Basic-rate taxpayers and small portfolios often stay better off personally. Always model both routes before deciding — and never transfer existing property into a company without specialist advice.
Furnished Holiday Let Abolition (April 2025)
The furnished holiday let (FHL) regime was abolished from April 2025. FHLs previously enjoyed generous treatment: full mortgage interest relief, capital allowances on furniture, CGT reliefs including Business Asset Disposal Relief and rollover relief, and profits counting as relevant earnings for pension contributions.
From April 2025, short-term lets are taxed under ordinary property income rules: Section 24 applies, capital allowances give way to replacement of domestic items relief, and the CGT reliefs are withdrawn. Owners of holiday lets have seen a meaningful rise in their tax cost and should review whether the model still works. See the furnished holiday let tax guide for the transitional detail.
Replacement of Domestic Items Relief
The old “wear and tear” allowance — a flat 10% of rent for furnished lets — was abolished in 2016. In its place is replacement of domestic items relief.
You can deduct the actual cost of replacing furnishings, appliances and kitchenware provided for the tenant — a new sofa, fridge, carpet or washing machine — but not the cost of the first (initial) provision. The relief is for a like-for-like replacement; upgrade to something better and the deduction is capped at the cost of an equivalent item, with proceeds from selling the old item netted off. Keep receipts, as this is a common area for HMRC enquiry.
Making Tax Digital for Landlords
Making Tax Digital for Income Tax (MTD ITSA) reaches landlords on a phased timetable based on combined property and self-employment income:
- April 2026: mandatory above £50,000 of qualifying gross income.
- April 2027: threshold drops to £30,000.
- April 2028: a £20,000 threshold has been announced.
Affected landlords must keep digital records and file quarterly updates through compatible software, plus a final declaration after the tax year. Below the threshold, the normal annual return continues for now — but adopting bookkeeping software early eases the transition. See the MTD ITSA guide for details.
Worked Example: A Higher-Rate Landlord
Consider a higher-rate taxpayer with one buy-to-let: £15,000 annual rent, £6,000 of mortgage interest and £2,000 of allowable expenses. Figures are illustrative for 2026/27.
- Taxable profit: £15,000 rent − £2,000 expenses = £13,000 (interest is not deducted here).
- Income tax at 40%: £13,000 × 40% = £5,200.
- Section 24 credit: 20% × £6,000 interest = £1,200 reduction.
- Tax due: £5,200 − £1,200 = £4,000.
Under the pre-Section-24 rules, the same landlord would have deducted the £6,000 interest first, paying 40% on £7,000 = £2,800 — so Section 24 costs this landlord around £1,200 a year. A company, deducting the interest in full, would pay corporation tax on £7,000 of profit instead. Run your own figures with the buy-to-let calculator and the Section 24 calculator.