Buy-to-Let Landlord Tax Planning in 2026: The Complete Guide

Buy-to-let property investment remains one of the most popular wealth-building strategies for UK investors. But the tax environment has shifted dramatically since the government began restricting landlord reliefs in 2015. Understanding the current rules — and the planning strategies that remain available — is essential for any landlord with a property portfolio.

Section 24: The Mortgage Interest Restriction

Section 24 of the Finance (No. 2) Act 2015 is the most impactful tax change for residential landlords in a generation. Phased in from 2017 to 2021, it is now fully in effect.

Under Section 24, individual landlords (not companies) can no longer deduct mortgage interest as a business expense against rental income. Instead, they receive a basic rate (20%) tax credit on the mortgage interest paid. For higher-rate and additional-rate taxpayers, this means:

Before Section 24 (per year, illustrative example):

• Rental income: £24,000
• Mortgage interest (£400,000 at 5%): -£20,000
• Taxable profit: £4,000
• Tax at 40%: £1,600

After Section 24:

• Rental income: £24,000
• No interest deduction
• Taxable profit: £24,000
• Tax at 40%: £9,600
• Less 20% tax credit on £20,000 interest: -£4,000
• Net tax: £5,600

The tax cost has increased from £1,600 to £5,600 in this example — a 250% increase. For landlords with higher gearing or lower rental yields, the effect can be even more dramatic. Some landlords are effectively paying tax on a loss — where their mortgage interest and other costs exceed rent, they still have a taxable rental income under Section 24.

Section 24 and basic rate taxpayers: Section 24 has no impact on a basic rate taxpayer, because the 20% tax credit is equivalent to the 20% relief they would previously have received. The restriction bites only on higher-rate and additional-rate taxpayers. Note, however, that rental income added to other income can push a basic rate taxpayer into the higher rate band — meaning Section 24 can affect those who did not previously consider themselves higher-rate taxpayers.

The Ltd Company Response

The mortgage interest restriction does not apply to companies — a company holding rental property can deduct 100% of its mortgage interest as a business expense against rental income. This is the primary reason that new buy-to-let purchases through limited companies have grown enormously since 2017.

A company pays corporation tax on net rental profit at 25% (for profits above £250,000), or at the lower rate for smaller companies. Compared with the 45% additional rate that an individual higher-rate taxpayer might pay, the company tax rate provides a significant advantage.

The extraction problem. The tax saving inside the company is real, but extracting the profit to personal hands costs additional tax. Dividends are taxed at 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate) — the basic and higher rates rose by 2 percentage points from 6 April 2026. The most tax-efficient strategy for a company landlord who does not need to extract all profits personally is to reinvest within the company — using accumulated after-tax profits to make further property purchases, reducing the need for external borrowing.

New purchases only. Converting an existing personally-held portfolio into a company structure triggers CGT (on the deemed disposal at market value) and SDLT (on the company's deemed purchase). For most established portfolios, the conversion costs are prohibitive. The company strategy works for new purchases going forward.

Capital Gains Tax on Rental Property

When a residential rental property is sold, the gain is subject to CGT. Key rules:

Current rates (2026):

• Residential property: 24% for higher/additional rate taxpayers.
• Basic rate taxpayers: 18% (to the extent the gain fits within the basic rate band, then 24% above).

Annual CGT exemption: £3,000 per person (2026). Maximising this through phased disposals across tax years can reduce the cumulative tax cost.

Spousal transfers before sale: assets transferred between spouses are CGT-neutral. If one spouse is a lower-rate taxpayer, a transfer of the property (or a share of it) to the lower-rate spouse before sale can reduce the overall CGT rate applicable to the gain.

HMRC 60-day reporting: gains on UK residential property must be reported to HMRC within 60 days of completion of the sale, and the estimated tax paid within the same period. Failure to report or pay on time incurs penalties and interest. This is a commonly missed compliance requirement.

Principal Private Residence (PPR) relief: if you ever lived in the property as your main residence, you are entitled to PPR relief for the period of occupation plus the final nine months of ownership (regardless of occupation). If you lived in the property for two years before letting it for ten years, you receive two years plus nine months of exempt gain out of twelve years — approximately 23% of the total gain is exempt. This can be a significant relief; consider the PPR history of any property before selling.

Losses: capital losses can be set against capital gains in the same year, or carried forward indefinitely. If you have sold properties at a loss in previous years, the losses are available to offset future gains.

Allowable Expenses: Maximise Your Deductions

Individual landlords can still deduct a wide range of allowable expenses against rental income:

• Letting agent fees.
• Accountancy and legal fees directly related to the rental business.
• Buildings and contents insurance.
• Ground rent and service charges.
• Maintenance and repair costs (not improvements — see below).
• Utility bills paid by the landlord.
• Council tax when the property is vacant between tenancies.
• Home office costs (a proportion of broadband, phone, and home costs if you manage the portfolio from home).

Repairs vs improvements: only repairs — restoring the property to its original condition — are deductible. Improvements (upgrading to a higher standard) are capital expenditure and are added to the base cost of the property, reducing the eventual CGT gain rather than being deductible against income.

Replacement of domestic items relief: landlords in furnished properties can deduct the cost of replacing domestic items (sofas, beds, appliances) — not the initial purchase cost, but the like-for-like replacement cost.

The Furnished Holiday Let Regime: Abolished from April 2025

The favourable tax regime for Furnished Holiday Lettings (FHLs) was abolished with effect from April 2025. This is a significant change for landlords in short-let and holiday accommodation.

Under the old FHL regime, qualifying holiday properties received:

• Full deductibility of mortgage interest (not subject to Section 24).
• Business Asset Disposal Relief (BADR) at 10% CGT on sale.
• Capital allowances on furniture and equipment.
• Qualifying earnings for pension contribution purposes.

From April 2025, FHLs are treated as ordinary residential rental properties. They are now subject to Section 24, the 24% residential CGT rate, and the loss of BADR. For landlords whose portfolio was structured around the FHL regime — particularly in peak tourist locations such as the Cotswolds, Cornwall, or the Scottish Highlands — this represents a very significant increase in tax cost.

Action for former FHL landlords: review whether retaining the property in the rental market remains economically viable at the higher tax rate; consider whether sale (capturing any available PPR relief and the previous BADR rate if the disposal was before April 2026) is appropriate; explore whether the property can be used differently (commercial letting, longer-term residential letting).

Optimisation Strategies for 2026

Review portfolio gearing. Reducing the mortgage balance (and therefore the interest cost subject to Section 24) directly reduces the tax cost. If you have accumulated significant equity in your properties, using savings or investment proceeds to pay down high-interest mortgages may provide an effective after-tax return.

Consider Ltd company for new acquisitions. The tax advantage of company ownership is real for higher-rate taxpayers who are willing to leave profits within the company and reinvest.

Maximise repairs before year end. Timing legitimate repair and maintenance expenditure before the end of the tax year ensures the deduction falls in the right year.

Furnished rooms allowance. The Rent-a-Room scheme allows up to £7,500 of gross rental income per year to be received tax-free by owner-occupiers who let a furnished room in their own home. This is separate from buy-to-let and applies only to the owner-occupied main residence.

Review the portfolio annually. The economics of each property — particularly for highly mortgaged properties — should be reviewed annually to ensure the property remains financially viable after the Section 24 effect.

Non-Resident Landlords

Non-UK resident landlords must register with HMRC's Non-Resident Landlord Scheme. Under this scheme, the letting agent (or tenant, if there is no agent) is required to withhold basic rate income tax (20%) from the rent and pay it to HMRC quarterly — unless the landlord has received approval to receive rent gross.

Non-resident landlords must file a UK self-assessment return to account for UK rental income and any allowable expenses. They are subject to the same Section 24 restriction as UK-resident individual landlords.

The Non-Resident Landlord Scheme is a compliance obligation that catches many landlords by surprise on moving abroad. Early registration avoids penalties.

Important Considerations

Tax law changes frequently. The rates, allowances, and rules described in this article reflect the position as at June 2026 and are subject to change. This article is a general guide only and does not constitute tax or financial advice. The optimal strategy for any landlord depends on their individual circumstances — income level, portfolio size, mortgage structure, personal tax position, and future plans. Always seek qualified independent tax advice from an accountant or tax adviser with experience in property investment. Property values can fall as well as rise.

How Global Investments Can Help

Global Investments works with property investors — including non-resident landlords and those with complex multi-property portfolios — to review and optimise their tax position and portfolio structure. We coordinate with specialist property tax accountants and solicitors to ensure the right structure is in place, and we provide investment and portfolio planning services to ensure the property holdings sit appropriately within the overall wealth plan. Contact our team to discuss your property tax planning.