Landlord Tax UK 2026: Income Tax, Capital Gains and Relief Explained

Tax is one of the biggest costs for UK private landlords and one of the most frequently misunderstood. This guide covers the main taxes landlords face, income tax on rental profits, capital gains tax on disposals, and Stamp Duty Land Tax, explains the Section 24 mortgage interest restriction, and outlines the key allowable expenses that reduce your liability.

Income tax on rental profits

Rental income is taxed as income. You pay income tax on your rental profit (rent received minus allowable expenses) at your marginal rate, 20% (basic rate), 40% (higher rate), or 45% (additional rate). Most landlords with a salary or other income find rental profit pushes them into the higher rate band.

The Section 24 mortgage interest restriction

Since April 2020, individual landlords (not companies) can no longer deduct mortgage interest as a business expense against rental income. Instead, you receive a basic rate tax credit of 20% of mortgage interest paid. This means higher-rate taxpayers effectively pay tax on income they have already spent on mortgage interest, a significant increase in the effective tax rate for leveraged landlords.

• Basic-rate taxpayers, the tax credit largely offsets the restriction; limited impact.
• Higher-rate taxpayers, effective tax rate on mortgaged properties is significantly higher than pre-2017.
• Limited companies, can still deduct mortgage interest in full. This is the main driver of landlords incorporating.

Allowable expenses, what you can deduct

• Letting agent fees and management costs.
• Buildings and contents insurance premiums.
• Maintenance and repairs (not improvements, these are capital expenditure).
• Ground rent and service charges (leasehold properties).
• Accountancy fees directly related to the rental business.
• Council tax, water rates, utilities paid by the landlord.
• Legal fees for new short-term tenancy agreements (generally deductible).

Capital gains tax on rental properties

When you sell a rental property, you pay Capital Gains Tax (CGT) on the profit, the difference between the sale price and your original purchase price (adjusted for costs and improvements). CGT on residential property is charged at 18% (basic rate) or 24% (higher rate) as of 2024-25. You must report and pay CGT on residential property sales within 60 days of completion.

Stamp Duty Land Tax (England) on buy-to-let purchases

Since April 2016, buy-to-let purchases (and second homes) attract a 3% SDLT surcharge on top of the standard rates. As of 2024-25, the total SDLT rates for additional residential properties start at 5% on the first £250,000. Budget your acquisition costs accordingly.

Limited company vs personal ownership

Incorporating your rental portfolio into a limited company allows full mortgage interest deduction (corporation tax rate 25% for profits over £250,000), but creates additional administration costs, stamp duty on transfer, and potential double taxation on dividends. The decision depends on your portfolio size, personal tax rate, and long-term plans. Get specialist tax advice before incorporating.