Buy-to-Let Tax Changes 2026: What Landlords Need to Know

The Autumn Budget 2024 raised the stamp duty land tax surcharge on additional residential properties from 3% to 5%. This applies to any buy-to-let purchase completing on or after 31 October 2024.

The standard SDLT bands for residential property are:

• 0% on the first £125,000
• 2% on £125,001 to £250,000
• 5% on £250,001 to £925,000
• 10% on £925,001 to £1,500,000
• 12% above £1,500,000

For buy-to-let purchases, add 5% to every band. That means you pay 5% from the first pound.

Worked example — £250,000 BTL purchase:

Under the old 3% surcharge:

• £125,000 at 3% = £3,750
• £125,000 at 5% = £6,250
• Total: £10,000

Under the new 5% surcharge:

• £125,000 at 5% = £6,250
• £125,000 at 7% = £8,750
• Total: £15,000

That is £5,000 more on a single purchase — a 50% increase in the stamp duty bill. On a £400,000 property, the difference widens to £8,000.

For landlords expanding a portfolio, this is the most immediate and visible cost increase. It cannot be offset, reclaimed, or spread over time — it is payable on completion. Use our stamp duty calculator to model exact costs for any purchase price.

First-time buyers, by contrast, continue to benefit from their own relief: 0% up to £300,000 and 5% from £300,001 to £500,000. The gap between a first-time buyer's stamp duty and a landlord's has never been wider — a deliberate policy choice to tilt the market toward owner-occupiers.

Section 24 — the restriction on mortgage interest relief for residential landlords — finished phasing in during the 2020/21 tax year. But many landlords still do not fully grasp how it works, because the mechanism is genuinely unusual.

Before Section 24, a higher-rate taxpayer could deduct mortgage interest from rental income before calculating tax. If you earned £15,000 rent and paid £8,000 in mortgage interest, you were taxed on £7,000 at 40%. Tax bill: £2,800.

Now, you cannot deduct mortgage interest at all. Instead, you receive a 20% tax credit on the interest paid. So you are taxed on the full £15,000 at 40% = £6,000, then you get a credit of 20% of £8,000 = £1,600 back. Net tax: £4,400.

The difference: £1,600 more tax per year on a single property.

The cruel twist: Section 24 can push you into a higher tax band. If your salary is £45,000 and your gross rental income is £15,000, HMRC sees total income of £60,000 — well into higher-rate territory — even though your actual profit after mortgage costs is far lower. This phantom income effect hits landlords with modest portfolios hardest.

Basic-rate taxpayers are unaffected because they were deducting at 20% and now get a credit at 20% — the maths works out the same. Section 24 is specifically a problem for anyone whose combined income crosses the higher-rate threshold of £50,270.

With the Bank of England base rate at 3.75% and average BTL mortgage rates around 4.84%, interest costs remain substantial. Every percentage point on your mortgage rate now costs more in real terms because of Section 24. This is why the relationship between mortgage rates and tax policy matters more than ever for landlord profitability.

From April 2027, the basic rate of income tax rises from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%. These are the biggest changes to UK income tax rates in over a decade.

For landlords, this compounds on top of Section 24. Take our earlier example: £15,000 rental income, £8,000 mortgage interest, higher-rate taxpayer.

Tax bill under current rates (2025/26):

• Tax on £15,000 at 40% = £6,000
• Less 20% credit on £8,000 = £1,600
• Net tax: £4,400

Tax bill from April 2027:

• Tax on £15,000 at 42% = £6,300
• Less 20% credit on £8,000 = £1,600 (the credit stays at 20%, not 22%)
• Net tax: £4,700

That is £300 more per property per year. Across a three-property portfolio, it adds up to £900 annually. The Section 24 tax credit remains fixed at 20% — it does not rise with the basic rate. This widens the gap between your marginal rate and the relief you receive.

For basic-rate taxpayers, the 2027 change creates a new problem. Currently, Section 24 is neutral for basic-rate payers because the credit matches the rate. From April 2027, you will pay tax at 22% but only receive a 20% credit — a 2% shortfall on every pound of mortgage interest. On £8,000 of annual interest, that is £160 of additional tax that did not exist before.

Landlords have roughly 12 months to restructure before these rates take effect. Options include incorporating (limited company ownership pays corporation tax instead), reducing leverage, or increasing rents — none of which are cost-free. Visit our tax hub for guidance on allowances and planning strategies.

When you sell a buy-to-let property, you pay capital gains tax at 18% (basic rate) or 24% (higher rate). The annual exempt amount has been cut to just £3,000 — down from £12,300 as recently as 2022/23.

That £9,300 reduction in the exempt amount means a higher-rate taxpayer selling a property with a £50,000 gain now pays £2,232 more in CGT than they would have three years ago. The rates themselves have not changed for residential property, but the allowance squeeze has the same practical effect as a rate rise.

If you are considering selling, the timing matters. CGT is reported and paid within 60 days of completion for UK residential property — not at the end of the tax year. And because Section 24 may have inflated your apparent income, you could be pushed into the 24% band even if your salary alone sits in basic rate.

For landlords weighing whether to hold or sell, the interaction between income tax changes (higher from 2027), ongoing Section 24 costs, and CGT on disposal creates a genuine squeeze from all three directions. Our earlier article on BTL tax traps walks through the hold-vs-sell decision in more detail.

The window between now and April 2027 is the planning window. Here is what is worth considering.

1. Run the numbers on incorporation. A limited company pays corporation tax (currently 25%) rather than income tax on rental profits. Mortgage interest is fully deductible for companies — Section 24 does not apply. The trade-off: extracting profits from a company triggers dividend tax, and transferring existing properties into a company crystallises CGT and SDLT. For new purchases, company ownership is increasingly the default structure. For existing portfolios, the maths depends on your marginal rate, mortgage balance, and time horizon.

2. Review your mortgage structure. With the base rate at 3.75% and BTL rates averaging 4.84%, the spread is relatively tight. If rates fall further — the next MPC decision is 19 March 2026 — locking in now might not be optimal. Compare your options using our mortgage guide and the analysis in our fixed vs variable rate article.

3. Maximise your ISA allowance. The £20,000 annual ISA allowance shelters investment returns from both income tax and CGT entirely. If you are debating between a £250,000 BTL purchase (with £15,000 SDLT and ongoing Section 24 costs) and £250,000 in a stocks and shares ISA, the tax-free wrapper deserves serious consideration. Our ISA hub covers the options.

4. Check your tax band. The personal allowance remains frozen at £12,570 and the basic rate band at £37,700, meaning the higher-rate threshold is £50,270. If your employment income plus gross rental income crosses this line, Section 24 costs escalate sharply. Even modest rental income on top of a mid-range salary can trigger higher-rate taxation on the entire rental amount.

5. Get advice before April 2027. The interaction between the new tax rates, Section 24, and your personal circumstances is genuinely complex. A tax adviser who specialises in property can model the specific impact on your portfolio and identify whether incorporation, debt reduction, or disposal makes financial sense.

These tax changes are not random. They represent a sustained policy shift over the past decade: making buy-to-let less tax-advantaged relative to other investments. The 3% surcharge in 2016, Section 24 phased in from 2017 to 2020, the surcharge increase to 5% in 2024, the CGT allowance cuts, and now higher income tax rates from 2027.

The cumulative effect is significant. A higher-rate taxpayer buying a £250,000 BTL property today faces £15,000 in SDLT, ongoing Section 24 costs of £1,600+ per year, and from 2027 an additional £300+ per year in income tax — before accounting for maintenance, void periods, letting agent fees, and the ever-present risk of problem tenants.

None of this means buy-to-let is dead. Rental demand remains strong, and property provides diversification that pure equity portfolios lack. But the days of property being the UK's default wealth-building strategy are over. The tax system now actively favours pensions and ISAs for most investors.

FCA disclaimer: This article is for informational purposes only and does not constitute financial advice. Tax rules are subject to change. Consider seeking independent financial advice tailored to your personal circumstances before making investment decisions.