Buy-to-let property investment in the UK was, for much of the 2000s and 2010s, extraordinarily tax-efficient. Mortgage interest was fully deductible against rental income; stamp duty was standard; capital gains rates were lower than today. That landscape has changed substantially. The combined effect of Section 24, higher SDLT, rising corporation tax, and looming regulatory requirements has transformed the economics of direct landlordism — particularly for higher and additional rate taxpayers. This guide sets out the current tax position clearly, without advocacy for or against the asset class.
Section 24: The Finance Cost Restriction
The most significant tax change affecting individual buy-to-let landlords in a generation was the phased introduction of the Section 24 finance cost restriction, which reached full implementation in the 2020-21 tax year and remains in force.
Under the old rules, mortgage interest was deductible from rental income as a business expense, reducing the taxable profit. Under Section 24, this deduction is replaced by a basic rate (20%) tax credit.
The practical effect for a higher-rate (40%) or additional-rate (45%) taxpayer is stark:
Before Section 24 (illustrative):
- Annual rental income: £24,000
- Mortgage interest: £12,000
- Taxable profit: £12,000
- Income tax at 40%: £4,800
After Section 24 (same figures):
- Annual rental income: £24,000
- No mortgage interest deduction: taxable profit = £24,000
- Income tax at 40% on £24,000: £9,600
- Less 20% tax credit on £12,000 interest: £2,400
- Net tax liability: £7,200
The landlord's pre-tax cash position is identical; the after-tax position has deteriorated by £2,400 in this example — a 50% increase in tax. For landlords with high leverage and rental income that barely exceeds mortgage interest, the position is worse still: they may show a taxable profit on paper while making a cash loss, and their overall income for tax purposes may be inflated, pushing them into higher rate bands or above the personal allowance taper.
Section 24 does not apply to corporate landlords — which has driven significant interest in limited company structures (discussed below). The Furnished Holiday Lettings regime, which previously exempted qualifying FHLs from Section 24, was abolished from 6 April 2025; FHL income is now subject to the same Section 24 restriction as standard residential lettings.
Stamp Duty Land Tax: The Surcharge Structure
Buy-to-let purchases and second home acquisitions attract an additional 5% SDLT surcharge on top of standard residential rates (raised from 3% to 5% on 31 October 2024; originally introduced in April 2016). A further 2% surcharge applies to non-UK resident purchasers of residential property, introduced in April 2021 — these surcharges are cumulative.
For a non-UK-resident purchaser acquiring an additional residential property in England:
| Purchase price | Standard rate | +5% surcharge | +2% non-resident surcharge | Total effective rate |
|---|---|---|---|---|
| Up to £125,000 | 0% | 5% | 2% | 7% |
| £125,001-£250,000 | 2% | 5% | 2% | 9% |
| £250,001-£925,000 | 5% | 5% | 2% | 12% |
| £925,001-£1.5m | 10% | 5% | 2% | 17% |
| Above £1.5m | 12% | 5% | 2% | 19% |
On a £500,000 purchase by a non-UK resident acquiring as a buy-to-let, total SDLT is approximately £50,000 — a significant upfront cost that must be factored into yield calculations. The non-resident surcharge can be refunded if the purchaser becomes UK-resident within 12 months of completion, but this is an administrative process requiring a specific claim.
Limited Company vs Personal Ownership
The Section 24 restriction applies to individuals, not to corporate landlords. A property held in a limited company can deduct mortgage interest in full against rental income. Corporation tax is currently charged at 25% on profits above £250,000 (19% for profits below £50,000, with marginal relief between these thresholds).
This makes the arithmetic of limited company ownership look attractive — particularly for higher-rate taxpayers with substantial mortgage finance. However, the comparison requires accounting for:
Incorporation costs: Transferring an existing portfolio to a company triggers a deemed disposal at market value for CGT purposes, and SDLT on the full value of the portfolio. The "incorporation relief" available for genuine property businesses can defer the CGT charge, but its availability is fact-specific and contested by HMRC. For many landlords, the transfer costs make incorporation of an existing portfolio uneconomic.
Extraction costs: Profits in a company are taxed at 19-25% corporation tax. Extracting the profit as a dividend is then taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) on the dividend income. The combined effective rate for an additional-rate taxpayer extracting all profit is approximately 53-56% — higher than the post-Section 24 personal rate. The arithmetic only clearly favours companies where significant profits are retained within the company for reinvestment rather than extracted.
Mortgage availability and cost: Many lenders apply stricter criteria and charge higher rates for limited company buy-to-let mortgages. Arrangement fees may also be higher.
Ongoing compliance costs: A company requires annual accounts, a confirmation statement, and potentially more complex tax returns. These add ongoing costs that erode the yield advantage for smaller portfolios.
For new purchases going forward, the calculus generally favours a company structure for higher-rate taxpayers intending to build a portfolio and reinvest rental income. For existing personal portfolios, the transfer costs often make change uneconomic without significant growth in portfolio value. Professional advice is essential before acting.
EPC Requirements: What Is Coming
All rental properties in England and Wales are currently required to have an Energy Performance Certificate (EPC) rating of E or above. The previous government proposed tightening this to EPC C for new tenancies, with enforcement expected from 2028, and for all tenancies (including existing tenancies) from 2030. The current government has broadly maintained this trajectory, though the precise implementation timetable should be confirmed.
The cost of upgrading properties from EPC D or E to EPC C varies significantly: solid wall insulation alone can cost £8,000-£25,000 per property. Landlords with large portfolios of older stock face material capital expenditure requirements. These costs cannot currently be offset against income tax as revenue expenditure — they may be capital expenditure that improves the disposal cost base, but the timing of relief is deferred.
Properties unable to reach EPC C economically may not legally be let in future. This is a material consideration for any property purchased today, particularly Victorian or Edwardian terraced stock.
Capital Gains Tax on Disposal
The residential property CGT rate for 2026-27 is 24% for higher and additional rate taxpayers (reduced from 28% in the October 2024 Autumn Statement and unchanged since). Basic rate taxpayers pay 18% to the extent the gain falls within the basic rate band.
The key procedural requirement: any disposal of UK residential property must be reported to HMRC using the online CGT service within 60 days of completion, and the estimated tax paid within the same window. This applies even if the taxpayer is not yet required to file a self-assessment return. Failure to meet the 60-day deadline attracts automatic penalties.
Main residence relief — which can exempt gains on a principal private residence — does not apply to investment properties that have never been the landlord's home. However, a property that was once the landlord's principal residence may qualify for partial relief, including the final nine months of ownership regardless of occupation.
Non-UK-resident landlords are also subject to CGT on UK residential property disposals under the NRCGT regime, with the same 60-day reporting requirement.
Section 21: No-Fault Evictions
The Renters' Rights Act 2025 abolished Section 21 "no-fault" evictions in England, requiring landlords to rely on specified Section 8 grounds to recover possession. While this is not a tax change, it materially alters the flexibility of the asset class and the risk profile of tenancy management, particularly for landlords managing difficult tenants or wishing to sell with vacant possession.
The Net Position in 2026
The cumulative effect of these changes — Section 24, higher SDLT, rising EPC compliance costs, and tighter tenant protection — has materially reduced the after-tax yield of residential buy-to-let for individual higher-rate taxpayers. The asset class retains investment merit in specific circumstances: corporate ownership, properties with strong capital growth prospects, and commercial property. Note: the Furnished Holiday Lettings regime was abolished from 6 April 2025 — FHLs are now subject to the same Section 24 restriction as standard buy-to-let.
For internationally mobile HNW investors, alternative property investment vehicles — REITs, property funds, or international residential markets with more favourable landlord taxation — may offer better risk-adjusted returns. This is not a recommendation to exit the sector; it is a recommendation to model the after-tax economics carefully before committing capital.
Investments can fall as well as rise in value. Tax rules are subject to change. The rates and thresholds cited in this article reflect the position as at June 2026. Professional tax advice should always be sought before making property investment decisions.
How Global Investments Can Help
Global Investments advises high-net-worth clients on property investment strategy across multiple markets, including the after-tax economics of UK residential property versus international alternatives. Our team can model the impact of Section 24 on your existing portfolio, assess the limited company question, and help you structure property investment in the most efficient manner for your circumstances. Contact us to arrange a consultation.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.