Landlord Tax Guide UK 2026 — What You Owe and How to Reduce It

Income tax on rental profits

Rental income is subject to income tax after deducting allowable expenses. The profit is added to your other income and taxed at your marginal rate:

• Basic rate (20%): income £12,571–£50,270
• Higher rate (40%): income £50,271–£125,140
• Additional rate (45%): income above £125,140
• Rental profits must be declared on a Self Assessment tax return — register with HMRC if you have not already done so
• If your gross rental income exceeds £10,000 per year you must complete a tax return regardless of whether you have taxable profits
• Income from jointly owned properties is split according to the ownership share (50/50 for married couples unless a Form 17 declaration has been made)

Section 24 — mortgage interest restriction

Section 24 of the Finance (No.2) Act 2015 restricts tax relief on finance costs (mortgage interest, arrangement fees, loan interest) for individual residential landlords. Since 2020/21, the restriction is fully in force:

• You can no longer deduct mortgage interest as an expense against rental income
• Instead, you receive a 20% tax credit on the lower of: your finance costs, your rental profits, or your adjusted total income
• A higher-rate (40%) taxpayer with £10,000 mortgage interest receives only £2,000 tax relief (20%), not £4,000 (40%)
• Section 24 does NOT apply to: furnished holiday lets (from 2025/26 the FHL regime has been abolished — see below), properties held in a limited company, or commercial properties
• The restriction can push landlords into higher tax bands by inflating 'notional' profit — seek advice from a specialist accountant
• Limited company structures (SPVs) are not subject to Section 24 — corporations tax is paid on profits and finance costs are fully deductible

Allowable expenses — what you can deduct

The following expenses can be deducted against rental income (before the Section 24 restriction is applied to finance costs):

• Letting agent fees — management and letting fees charged by your agent
• Repairs and maintenance — like-for-like repairs (not improvements) including boiler repairs, roof repairs, repainting
• Insurance premiums — buildings and contents insurance, landlord liability insurance, rent guarantee insurance
• Ground rent and service charges — for leasehold properties
• Council tax and utilities — if paid by the landlord during void periods
• Professional fees — accountancy, legal fees (for tenancy matters, not property purchase)
• Travel costs — mileage to inspect or manage the property (HMRC approved rate)
• Wear and tear allowance (replaced): The 10% wear and tear allowance was replaced in 2016 by the replacement furniture relief — you can deduct the cost of replacing domestic items (beds, sofas, white goods) but not the original purchase

Capital gains tax on disposal

When you sell a buy-to-let property, the gain (sale price minus purchase price and allowable costs) is subject to CGT:

• CGT rates on residential property (2026/27): 18% (basic rate taxpayers) and 24% (higher/additional rate taxpayers) — following the October 2024 Budget changes
• Annual CGT exempt amount: £3,000 (2026/27) — much reduced from the £12,300 exempt amount in 2022/23
• Allowable costs: Purchase price, SDLT paid, solicitor's fees on purchase and sale, estate agent's fees, improvement works (not repairs), capital improvement costs
• 60-day reporting: Gains on UK residential property must be reported to HMRC within 60 days of completion using the UK Property Account — a CGT payment on account is also due within 60 days
• Private Residence Relief (PRR): If the property was your main residence at any point, a proportion of the gain may be exempt — seek professional advice
• Lettings Relief: No longer available (since April 2020) except where the landlord was in shared occupancy with the tenant

Stamp Duty Land Tax — the second property surcharge

Since April 2016, purchases of additional residential properties attract a 5% SDLT surcharge (increased from 3% in October 2024 Budget) on top of standard SDLT rates:

• The surcharge applies to any purchase where the buyer owns another residential property at the end of the transaction day
• Standard SDLT thresholds (from April 2025): 0% on first £250,000; 5% on £250,001–£925,000; 10% on £925,001–£1.5m; 12% above £1.5m
• The 5% surcharge is added to each band, so a buy-to-let purchase at £300,000 attracts 5% on first £250,000 + 10% on remaining £50,000
• First-time buyers purchasing their first home as a buy-to-let investment do NOT get first-time buyer relief — the surcharge still applies
• Company purchases of residential property: the 15% flat rate SDLT applies to properties over £500,000 bought in a corporate envelope

Limited company buy-to-let — the key trade-offs

Many landlords consider incorporating as a limited company (often an SPV — Special Purpose Vehicle) to avoid Section 24. The key trade-offs:

• Advantages: Full mortgage interest deductibility; corporation tax (25%) rather than income tax (40/45%); retained profits can be reinvested tax-efficiently
• Disadvantages: SDLT and CGT on transfer of existing portfolio from personal to company ownership; higher mortgage rates and fewer lenders for company buy-to-let; additional accounting costs
• New purchases: Incorporation makes more sense for new purchases than for transferring an existing portfolio — the SDLT and CGT costs on transfer are often prohibitive
• Always obtain specialist tax advice before incorporating — the decision depends on your specific tax position, mortgage terms, and long-term plans

Frequently asked questions