Buy-to-Let Tax Guide 2026/27: Income Tax, CGT and Section 24

Buy-to-Let Tax Guide 2026/27

Landlords in the UK face one of the most complex tax positions of any investor category — navigating income tax on rental profits, the Section 24 mortgage interest restriction that significantly increases effective tax rates, capital gains tax on sale, and the additional SDLT burden on purchase. This guide covers the complete tax picture for buy-to-let property in 2026/27.

Rental Income: The Basics

Rental income is subject to income tax at your marginal rate. It is added to your other income (salary, dividends, etc.) and taxed according to the overall band you fall into.

Tax reporting: If rental profits exceed £2,500/year after expenses, you must register for Self Assessment and file an annual return. Below this, you can ask HMRC to collect through your PAYE code.

Property Allowance: Up to £1,000 of rental income per year can be received completely tax-free under the property allowance, with no need to declare it. Above this, you must declare and deduct actual expenses (you cannot use the £1,000 allowance AND deduct actual expenses).

Allowable Expenses

Not allowable:

• Capital improvements (a new kitchen that adds value = capital expenditure, not repair)
• Mortgage capital repayments
• Personal time spent managing the property (no salary deduction)

Section 24: The Mortgage Interest Restriction

This is the most significant tax change for private landlords in recent decades. Since April 2020, mortgage interest is no longer a deductible expense against rental income. Instead, landlords receive a 20% basic rate tax credit on finance costs.

Before Section 24 (pre-2017):

• Rental income: £15,000
• Mortgage interest: −£7,500
• Taxable profit: £7,500 → Tax at 40%: £3,000

After Section 24 (2026/27):

• Rental income: £15,000
• Taxable profit (no deduction for interest): £15,000
• Tax at 40%: £6,000
• Less 20% credit on £7,500 interest: −£1,500
• Tax payable: £4,500 — an additional £1,500 vs old system

The impact is severe for higher-rate taxpaying landlords. Some have seen rental profits turn negative on a cash basis due to Section 24.

Section 24 Planning Options

Incorporation note: Transferring existing property to a limited company typically triggers SDLT and CGT as a disposal. The ongoing tax savings need to outweigh these upfront costs — model carefully. For new purchases directly into a company, the numbers are often more favourable.

Capital Gains Tax on Sale

Selling a buy-to-let property triggers Capital Gains Tax. In 2026/27:

Annual Exempt Amount: £3,000 (reduced significantly from £12,300 in 2022/23).

Calculating your gain:

• Sale price
• Less: Purchase price
• Less: Stamp duty paid on purchase
• Less: Legal and agent fees on both purchase and sale
• Less: Capital improvements (not repairs)
• = Net chargeable gain

Example: £350,000 sale, £200,000 purchase

• Gross gain: £150,000
• Less: SDLT on purchase (£7,500) + fees (£5,000) = £12,500
• Less: Improvements (new kitchen, £15,000)
• Net gain: £122,500
• Less: Annual exempt amount (£3,000)
• Taxable gain: £119,500
• Higher rate CGT (24%): £28,680

Reporting: Property CGT must be reported to HMRC and paid within 60 days of completion. Failure attracts penalties and interest.

Stamp Duty on Buy-to-Let Purchase

The 5% additional dwellings surcharge applies to all buy-to-let purchases. On a £250,000 buy-to-let:

• Standard rate: £2,500
• 5% surcharge adds: £12,500
• Total SDLT: £15,000

Inheritance Tax Considerations

Residential rental property forms part of your estate for IHT at 40% above the nil rate band (£325,000 per person, plus £175,000 residence nil rate band for main homes left to direct descendants — the RNRB does not apply to rental property).

IHT mitigation for rental property is complex — professional estate planning advice is essential.

Frequently Asked Questions

Q: Can I deduct a proportion of my home if I manage the properties from there? A small "home office" proportion is theoretically allowable but HMRC scrutinises this closely for rental businesses. The practical deduction is usually very small. Keep good records and don't over-claim.

Q: My partner and I own a property jointly — how is income split? HMRC's default assumption is 50/50 for married couples regardless of how funding was provided. To allocate differently (e.g., 90/10 to use one partner's lower rate), file a Form 17 with HMRC alongside a deed of beneficial interest change. Unmarried joint owners are taxed in proportion to their actual beneficial ownership.

Q: Is the Furnished Holiday Let regime still available? The Furnished Holiday Lettings (FHL) regime was abolished from 6 April 2025. Properties that previously qualified now fall under standard rental income rules and section 24 applies. Any capital allowances previously claimed may need to be reviewed.

Q: Should I use a letting agent or manage the property myself? Letting agent fees (8–15% of gross rent) are fully deductible against rental income. Self-management saves money but costs time and increases personal liability. For properties where rental profit margin is tight after Section 24, the tax deductibility of agent fees can tip the balance.