Guide · Property Tax
UK Landlord Tax Guide 2026/27
The tax landscape for UK landlords has shifted dramatically in the past decade. The Section 24 mortgage interest restriction (fully in force since 2020), repeated SDLT surcharge increases, the introduction of quarterly digital reporting via Making Tax Digital ITSA (from April 2026 for income above £50k), and shrinking CGT reliefs have all increased the complexity and cost of property investment. This guide covers everything individual landlords and property investors need to know in 2026/27: how rental income is taxed, what you can deduct, how Section 24 works, CGT on disposal, the 60-day reporting obligation, SDLT surcharges, and when a limited company structure might make sense.
Key landlord tax figures — 2026/27
- Rental income tax rate: marginal rate — 20% / 40% / 45%
- Section 24 mortgage interest relief: 20% basic-rate credit only (no deduction)
- CGT on residential property: 18% (basic-rate) / 24% (higher-rate)
- CGT Annual Exempt Amount: £3,000
- 60-day CGT reporting: within 60 days of completion
- SDLT surcharge (additional property): +5% on top of standard rates
- MTD ITSA — income above £50k: from April 2026
- MTD ITSA — income above £30k: from April 2027
How Rental Income Is Taxed
Rental income from UK properties is classified as non-savings income and taxed at your marginal income tax rate. It is added to all your other income — employment, pension, self-employment — to determine the total income and the applicable rate(s).
You pay tax on your net rental profit — income minus allowable expenses — not on the gross rent. If you own properties jointly with a spouse or civil partner, income is usually split 50/50 (unless you hold unequal shares and file a Form 17 with HMRC).
Example: Basic-rate landlord, 2026/27
- Rental income: £18,000/year
- Allowable expenses: £3,500 (agent fees, insurance, repairs)
- Mortgage interest: £8,400/year (20% credit = £1,680)
- Net rental profit before Section 24 credit: £18,000 − £3,500 = £14,500
- Income tax at 20%: £14,500 × 20% = £2,900
- Less Section 24 credit: −£1,680
- Tax payable: £1,220
Note: a higher-rate (40%) landlord on the same figures would owe: £14,500 × 40% − £1,680 = £4,120.
Section 24: The Mortgage Interest Restriction
Since April 2020, individual landlords (not companies) can no longer deduct mortgage interest as an expense when calculating rental profit. Instead, you receive a 20% tax crediton finance costs (mortgage interest plus arrangement fees and certain other loan costs). This change — introduced by Section 24 of the Finance (No.2) Act 2015 and phased in from 2017 — is arguably the most significant tax change for private landlords in a generation.
The practical effect for higher-rate landlords: previously you deducted interest at 40%, saving 40p per £1 of interest. Now you get a 20p credit — so you effectively lose 20p of relief per £1 of mortgage interest. This pushes many highly-leveraged higher-rate landlords into losses on a cash-flow basis while still generating a taxable profit on paper.
Allowable Expenses and the Replacement Relief
Expenses that can be deducted from rental income in 2026/27 include:
- Letting agent fees and management charges
- Buildings and contents insurance
- Maintenance and repairs (not improvements or extensions)
- Service charges and ground rent (leasehold properties)
- Accountancy and legal costs related to letting
- Advertising and tenant referencing costs
- Travel to the property for management or repair purposes
- Cost of replacing domestic items (the "replacement of domestic items relief")
The old Wear and Tear Allowance (10% of gross rent for furnished lettings) was abolished in April 2016. It was replaced by the "replacement of domestic items relief": you can deduct the cost of replacing a like-for-like item (sofa, appliance, curtains) but not the original cost and not for improvements above the original standard.
Capital expenditure — improvements, extensions, conversions — is not deductible against rental income. It is added to the base cost of the property for CGT purposes when you eventually sell.
Capital Gains Tax on Disposal
When you sell a rental property, any gain above the CGT Annual Exempt Amount (£3,000 for 2026/27) is subject to CGT at 18% (if you are a basic-rate taxpayer after adding the gain to your income) or 24% (higher/additional-rate). The gain is calculated as: sale proceeds minus original purchase price minus eligible capital expenditure minus selling costs.
The 60-day rule: Since October 2021, residential property gains must be reported to HMRC within 60 days of completion — not via the annual Self Assessment return. You must create a Capital Gains Tax on UK property account via HMRC online, report the gain, and pay an estimate of the CGT due within 60 days. Any under/overpayment is reconciled in your annual Self Assessment.
Private Residence Relief (PRR): If the property was your main home at any point, PPR can reduce the gain proportionally for the period of occupation. The final 9 months of ownership always qualify regardless of whether you were living there — so if you let a former main home, the CGT bill may be lower than expected.
SDLT on Buy-to-Let Purchases
Since October 2024, the Stamp Duty Land Tax additional-property surcharge is 5%on top of standard SDLT rates (increased from 3%). This applies to all purchases of additional residential properties in England and Northern Ireland — including buy-to-let, holiday lets and second homes.
| Purchase price | Standard SDLT (main home) | BTL/additional (with 5% surcharge) |
|---|---|---|
| £0–£250,000 | 0% | 5% |
| £250,001–£925,000 | 5% | 10% |
| £925,001–£1.5m | 10% | 15% |
| Above £1.5m | 12% | 17% |
The surcharge can be reclaimed within 36 months if you are replacing your main home — for example, if you complete on a new purchase before selling the old one, you pay the surcharge upfront but can apply for a refund once the old home is sold.
Limited Company: Advantages and Disadvantages
For landlords building a portfolio, holding properties through a limited company has become increasingly attractive since Section 24 restrictions do not apply to companies:
- Full mortgage interest deductibility: companies retain the old-style full deduction
- Lower tax rates: corporation tax 19% (profits under £50k) to 25% (profits over £250k)
- Dividend extraction: profits extracted as dividends at 10.75%–39.35% depending on rate
- Pension contributions: company can pay employer pension contributions tax-efficiently
Disadvantages:
- Transferring existing properties: triggers SDLT and CGT on any properties moved into the company
- Higher mortgage rates: commercial/limited company BTL mortgages cost more than personal BTL
- Complexity: company accounts, annual returns to Companies House, corporation tax returns
- No personal CGT AEA: companies have no annual exempt amount for CGT
The break-even analysis depends on individual circumstances — the higher the marginal rate and the more leveraged the portfolio, the stronger the case for a company structure for new acquisitions.
Making Tax Digital for Landlords: 2026–2027
MTD ITSA requires landlords to keep digital records and submit quarterly income and expense summaries to HMRC, replacing (or supplementing) the annual Self Assessment return:
- April 2026: mandatory for landlords with total income (property + trading) above £50,000
- April 2027: extended to those with income above £30,000
Quarterly submissions cover income and expenses only — you do not pay tax quarterly. The final end-of-year declaration remains, reconciling all quarterly updates and making any additional adjustments. HMRC-approved software must be used, though HMRC provides a free bridging service for those who do not wish to pay for commercial software.