Buy-to-let has transformed from a largely tax-efficient investment into a heavily taxed one over the past decade. The introduction of Section 24 — which removed mortgage interest as a deductible expense for individual landlords — fundamentally changed the maths. Here is what every landlord needs to understand.
Use the Buy-to-Let Calculator to model your monthly profit and annual tax position with full Section 24 accounting.
What Changed: The Section 24 Timeline
Prior to April 2017, landlords could deduct all mortgage interest directly from rental income before calculating tax. A landlord receiving £12,000 rent and paying £7,000 interest was taxed on £5,000 profit.
The rules were phased in from 2017 to 2020. Since April 2020, the full Section 24 rules apply:
- Rental income is calculated without deducting mortgage interest
- Tax is then calculated on that higher figure
- A 20% tax credit on mortgage interest is applied against the tax bill
The result: higher-rate taxpayers pay significantly more tax than under the old system. Some basic-rate taxpayers are pushed into the higher rate by the artificially inflated taxable income.
How Section 24 Tax Is Actually Calculated
Here is a worked example for a higher-rate (40%) taxpayer:
Gross annual rent: £18,000 Annual mortgage interest: £9,000 Other allowable costs (management, insurance, repairs): £3,000
Under old rules:
- Taxable profit = £18,000 − £9,000 − £3,000 = £6,000
- Tax at 40% = £2,400
Under Section 24:
- Taxable income = £18,000 − £3,000 (only non-finance costs) = £15,000
- Tax at 40% = £6,000
- Less 20% mortgage interest credit = 20% × £9,000 = £1,800
- Tax due = £4,200
The tax bill is 75% higher despite the economic profit being identical.
Allowable Expenses (Section 24 Context)
These costs can still be deducted from rental income:
- Letting agent fees
- Property maintenance and repairs
- Buildings and contents insurance
- Ground rent and service charges (leasehold)
- Council tax (only if paid by landlord, e.g. during voids)
- Accountancy fees
- Gas safety certificates, EPCs, and other compliance costs
These cannot be deducted:
- Mortgage capital repayments
- Mortgage interest (subject to Section 24 — only 20% credit applies)
- Capital improvements (these are for CGT purposes, not income tax)
The Limited Company Alternative
Many landlords have moved their portfolios into limited companies (usually a Special Purpose Vehicle — SPV) to avoid Section 24. Inside a limited company:
- Mortgage interest is fully deductible as a business expense
- Corporation tax (currently 19% on the first £50,000 profit, 25% above) applies
- Profits can be retained inside the company, deferring personal income tax
However, limited companies have their own costs:
- Accountancy fees are higher (£800–£2,000+/year)
- Mortgage products are fewer and often more expensive
- Transferring existing properties into a limited company triggers CGT and SDLT
For new investors starting from scratch with higher-rate incomes, a limited company structure is often more tax-efficient from day one. For established individual landlords, the costs of transferring usually outweigh the tax savings.
Capital Gains Tax on Sale
When you sell a buy-to-let property, Capital Gains Tax applies to the profit:
- 18% for basic-rate taxpayers
- 24% for higher and additional-rate taxpayers (reduced from 28% in April 2024)
The annual CGT exemption is now just £3,000 (reduced from £12,300 in 2023/24). This makes CGT a significant exit cost for most landlords.
Costs you can deduct from the gain:
- Original purchase price
- Stamp duty paid on purchase
- Legal fees on purchase and sale
- Capital improvements (not maintenance)
- Estate agent fees on sale
Stamp Duty Costs for Buy-to-Let
Buy-to-let purchases in England attract the standard 3% additional property surcharge on top of normal SDLT. On a £250,000 property:
- Standard SDLT: £0 (within the nil-rate band)
- Additional property surcharge: 3% × £250,000 = £7,500
This upfront cost directly affects your total ROI. Always factor it in when calculating your break-even period.
Is Buy-to-Let Still Worth It in 2026?
The honest answer: it depends entirely on your tax position, mortgage rate, and investment goals.
Still makes sense if:
- You are a basic-rate taxpayer
- You use a limited company structure (higher earners)
- You invest in high-yield areas (5%+ gross)
- You have a long-term horizon with capital growth expectations
- You have a large deposit reducing mortgage dependence
Much harder to justify if:
- You are a higher-rate taxpayer with a large mortgage
- Interest rates remain elevated (5%+)
- You are in a low-yield area (London sub-4% gross)
- You need short-term income returns
Run the full numbers in the Buy-to-Let Calculator before committing — the difference between an individual and company structure can be thousands of pounds per year.