Buy-to-let tax in the UK — Section 24, SDLT surcharge and CGT on exit

UK buy-to-let used to be a fairly mechanical investment: mortgage the property, deduct interest as a cost, pay tax on the net rental profit. The Section 24 changes phased in between 2017 and 2020 fundamentally rewrote those economics — and combined with the additional SDLT on second properties and CGT on disposal, the tax burden on a personally-held BTL today is materially higher than most landlords who bought before 2017 still budget for.

This is the current tax picture for a UK buy-to-let landlord operating in their personal name, plus the company alternative.

The Section 24 change

Pre-2017, mortgage interest was a deductible expense. £20,000 of rent and £12,000 of mortgage interest meant £8,000 of taxable profit, taxed at your marginal rate.

Section 24 of the Finance Act 2015 replaced this with a flat 20% tax credit on mortgage interest, fully phased in by April 2020. The mechanics now:

1. You pay tax on the gross rental income minus non-finance costs — repairs, agent fees, insurance, council tax during voids, etc. Mortgage interest is no longer deducted at this stage.
2. You then get a 20% tax credit based on the mortgage interest paid, applied against the tax bill.

For a basic-rate taxpayer, this is broadly neutral compared to the old system — you were always going to pay 20% on the rental profit, and now you get 20% credit on the interest. The net effect is similar.

For a higher-rate or additional-rate taxpayer, the impact is significant. Under the old system, mortgage interest reduced higher-rate-taxed profit by 40% (or 45%). Under the new system, the interest only gets 20% relief. The gap between the rates is the cost.

A worked example showing the impact

A higher-rate taxpayer has a BTL property with:

• £24,000 annual rent.
• £6,000 of allowable non-finance costs (agent, insurance, repairs, gas safety, etc.).
• £10,000 of mortgage interest.

Pre-2017 calculation:

• Taxable profit: £24,000 − £6,000 − £10,000 = £8,000.
• Tax at 40%: £3,200.
• Net rental income after tax: £24,000 − £6,000 − £10,000 − £3,200 = £4,800.

Current calculation (post-Section 24):

• Taxable profit: £24,000 − £6,000 = £18,000 (no interest deduction).
• Tax at 40%: £7,200.
• Interest tax credit: 20% × £10,000 = £2,000.
• Net tax: £7,200 − £2,000 = £5,200.
• Net rental income after tax: £24,000 − £6,000 − £10,000 − £5,200 = £2,800.

Same property, same cash flow before tax — £2,000 less in the landlord’s pocket annually.

It also pushes the apparent taxable profit higher, which can have knock-on effects: tipping the landlord into higher-rate territory, triggering Child Benefit charge thresholds, reducing the £100k personal allowance, and so on.

The additional SDLT (the “3% surcharge”)

When you buy any additional residential property — second home, BTL, holiday let — you pay an additional 5% SDLT on top of the standard SDLT bands. (Increased from 3% in the October 2024 Budget.)

A £250,000 BTL purchase in 2026/27:

• Standard SDLT (RUK rates): £2,500 on the portion above £125,000.
• Additional 5% surcharge on full £250,000: £12,500.
• Total SDLT: £15,000.

For comparison, a £250,000 main home purchase by a non-FTB pays only the £2,500 standard SDLT. The surcharge effectively prices in a year or more of rental income upfront.

If you buy the BTL before selling your main home, you also pay the surcharge — though you can reclaim it within three years if you sell your previous main home in that window.

Scotland and Wales have parallel additional dwelling surcharges (LBTT and LTT respectively) at similar rates. Our stamp duty calculator covers all three regimes.

Capital Gains Tax on disposal

When you sell a buy-to-let, the gain is taxed under CGT, not income tax.

• Annual exempt amount: £3,000 (down from £6,000 in 2023/24 and £12,300 before that).
• Residential property gains are taxed at 18% for basic-rate and 24% for higher-rate taxpayers. (Reduced from 28% in the October 2024 Budget for higher-rate, increased from 10% for basic-rate.)
• The gain is calculated as sale price minus original purchase price minus allowable costs (purchase SDLT, legal fees, capital improvements, sale costs).

A landlord who bought for £180,000 in 2010, made £20,000 of capital improvements, and sells for £350,000:

• Gross gain: £350,000 − £180,000 = £170,000.
• Less capital improvements: £170,000 − £20,000 = £150,000.
• Less estimated transaction costs (SDLT on purchase, legal fees both ends, agent fee): say £15,000.
• Net taxable gain: £135,000.
• Less annual exempt amount: £135,000 − £3,000 = £132,000.

For a higher-rate taxpayer: CGT at 24% = £31,680.

CGT on residential property sales must be reported and paid within 60 days of completion via HMRC’s online service — not deferred to the annual self-assessment return. This is one of the most common compliance traps for landlords.

Mortgage interest at higher rates compounds the tax effect

Because the Section 24 regime taxes profit before interest, a BTL with a high LTV mortgage looks much more profitable to HMRC than it actually is in cash terms. As mortgage rates rose post-2022, the gap between “cash profit” and “taxable profit” for highly geared BTL widened sharply.

Some highly geared higher-rate landlords now run negative net cash positions while still owing tax — paying out of other income to keep the BTL afloat. This is the structural reason for the wave of small-portfolio landlords selling up since 2022.

The company structure alternative

A property holding company sidesteps Section 24 — companies still deduct mortgage interest as a normal business expense before calculating taxable profit.

For higher-rate taxpayer landlords building portfolios, the company structure looks much more tax-efficient on the income side. The trade-offs:

1. Corporation tax + dividend tax on extraction. Profits are taxed at corporation tax rates first (25% for profits over £250,000, lower rates below), and then dividend tax when extracted. The two layers can come close to personal-rate taxation depending on extraction strategy.
2. No CGT annual exempt amount on company gains. Companies pay corporation tax on gains, not CGT — no £3,000 allowance.
3. Higher mortgage rates. Limited company BTL mortgages are typically 0.5–1.5% more expensive than personal-name equivalents, partly offsetting the income tax saving.
4. Higher SDLT in some cases. A company is treated as buying an additional property for SDLT, so the 5% surcharge applies even on the first company-owned property.
5. Setup and admin costs. Annual accounts, corporation tax returns, accountancy fees. £1,500–£3,000 a year is typical.

Existing personal-name landlords switching to a company also face a CGT event on transfer (treated as a sale at market value), plus another SDLT bill — so transfer is rarely worth it unless the long-term portfolio plan justifies the upfront cost.

The company route tends to win for landlords building portfolios from scratch with higher-rate income elsewhere, and tends to lose for small single-property landlords who could just hold personally.

Tax-allowable expenses

The non-finance costs deductible from rental income include:

• Letting agent fees and inventory clerks.
• Buildings and contents insurance.
• Council tax and utilities during void periods.
• Gas safety certificates, electrical certificates, EPCs.
• Repairs and maintenance (genuine repairs, not improvements).
• Cleaning and gardening between tenancies.
• Accountancy fees relating to the rental.
• Mortgage arrangement fees (amortised over the life of the deal).

The line between repairs (deductible) and improvements (capital, added to acquisition cost) is one of the most fought-over areas of property tax — replacing a kitchen like-for-like is a repair; upgrading to a higher-spec kitchen has an improvement element. HMRC’s property income manual covers the edge cases.

Other tax obligations

Beyond income tax and CGT, landlords should be aware of:

• Self-assessment. Any rental income above £1,000 (the property allowance) requires self-assessment registration.
• Class 2 and Class 4 National Insurance — generally not applicable to property income, which is unearned, but check if your activities are large enough to be considered a trade (FHL, serviced accommodation businesses).
• Inheritance tax. BTL property sits in your estate and is subject to IHT on death like other assets. There’s no Business Property Relief on standard residential rental property.
• Making Tax Digital for Income Tax (MTD ITSA) — quarterly reporting requirements phased in from April 2026 onwards for landlords with combined rental + self-employment income over the threshold.

The big picture

The UK tax treatment of buy-to-let isn’t hostile, but it’s less generous than it was a decade ago, and the gap between “headline yield” and “net of all taxes” is wider than many new landlords realise. For a small single-property landlord paying higher-rate income tax, a 5% gross yield can easily net 2.5–3% after all costs and taxes, before any capital appreciation. For a basic-rate taxpayer with no mortgage on the property, the after-tax position is materially better.

Before buying, model:

1. The gross yield.
2. Subtract the realistic non-finance costs (10–25% of rent depending on management style).
3. Subtract mortgage interest at the rate you’ll actually pay.
4. Calculate tax under Section 24 at your marginal rate.
5. Project the CGT bill on a 10-year exit scenario.

The resulting net is what you’re actually buying. Compare that net cash return to alternatives (Stocks & Shares ISA, additional pension contributions, mortgage overpayment on your main home) before committing.

For the related question of overpayment vs investment trade-offs, see our guide to mortgage overpayment vs investing.

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Last updated 1 June 2026. This guide is educational and is not personal financial advice. Buy-to-let tax rules are complex and change frequently — consult a qualified tax adviser before acting on the structure or disposal of a BTL property. See our disclaimer.