Buy-to-let tax changes over the past decade have reshaped the economics of residential property investment in England and Northern Ireland. Full mortgage interest relief for individual landlords is gone, replaced by a flat 20% tax credit. The stamp duty surcharge on additional properties has risen to 5%. The capital gains tax-free allowance has collapsed from £12,300 to £3,000. The furnished holiday lettings regime has been abolished. And from April 2026, quarterly digital reporting becomes mandatory for landlords with income above £50,000. Taken together, they mean a higher tax bill, more admin, and a harder case for holding rental property personally.
Mortgage Interest Is Now a 20% Tax Credit, Not a Deduction
Before April 2017, individual landlords deducted their full mortgage interest from rental income before tax. Section 24 of the Finance (No. 2) Act 2015 phased that out over four years, and since the 2020/21 tax year no mortgage interest can be deducted from rental profits at all.1legislation.gov.uk. Finance (No. 2) Act 2015 – Relief for Finance Costs Related to Residential Property Businesses
In its place you get a tax reduction worth 20% of your finance costs, calculated on the lowest of three figures: your finance costs for the year, your property business profits, or your adjusted total income above the personal allowance.2GOV.UK. Tax Relief for Residential Landlords: How It’s Worked Out
For a basic-rate taxpayer, the credit roughly matches what the old deduction was worth. For a higher-rate taxpayer, it doesn’t. You pay tax on your gross rental profit before interest, then claw back only 20% on the interest you actually paid. Someone on the 40% rate effectively pays tax at 40% on income that used to be sheltered and gets 20% back. Additional-rate taxpayers on 45% feel it more sharply again. Many leveraged landlords now owe tax even when their cash position after the mortgage is close to break-even.
The restriction applies only to individuals and partnerships of individuals. Companies holding rental property still deduct mortgage interest as a normal business expense, which is a large part of why company structures have grown more popular.
The Stamp Duty Surcharge on Additional Properties Is 5%
The surcharge for additional dwellings was originally 3%. The Autumn Budget 2024 raised it to 5% with effect from 31 October 2024, added on top of every band of the standard Stamp Duty Land Tax rate.3GOV.UK. Stamp Duty Land Tax: Residential Property Rates
The higher rates apply when you buy a residential property for £40,000 or more and already own another residential property anywhere in the world.4GOV.UK. Higher Rates of Stamp Duty Land Tax On a £250,000 buy-to-let, standard SDLT would be £2,500; with the 5% surcharge, the total is £15,000. The return and payment are due within 14 days of completion, and late filing triggers automatic penalties starting at £100.
You avoid the surcharge only if the new property replaces your main residence and you sold your previous home within 36 months of completion. For anyone genuinely adding to a portfolio, the extra 5% is unavoidable and needs to be built into the yield calculation from the outset.
Capital Gains Tax: Smaller Allowance, 60-Day Deadline
The annual capital gains tax-free allowance has been cut from £12,300 in 2022/23 to £3,000 for the 2025/26 tax year.5GOV.UK. Capital Gains Tax Rates and Allowances Almost the entire gain on a property sale is now taxable.
Rates on residential property disposals from 6 April 2025 are 18% for basic-rate taxpayers and 24% for anyone whose taxable income and gains reach the higher or additional rate bands.6GOV.UK. Capital Gains Tax: What You Pay It On, Rates and Allowances You add your taxable gain (after the £3,000 allowance) to your taxable income for the year; the portion inside the basic-rate band (up to £50,270 for 2025/26) is taxed at 18%, and anything above at 24%.7GOV.UK. Income Tax Rates and Personal Allowances
The 24% rate was itself a cut from 28%, introduced in late 2024 to encourage sales. But with the allowance so much lower, most landlords selling now still pay more overall than they would have a few years back.
The deadline catches people out. You must report and pay any capital gains tax on a UK residential property sale within 60 days of completion, separately from your annual self-assessment return.8GOV.UK. Report and Pay Your Capital Gains Tax Miss the 60-day window and you face interest plus penalties. Assuming you can wait until the following January is a costly mistake.
The Furnished Holiday Lettings Regime Has Been Abolished
Short-term holiday rentals used to enjoy a set of tax advantages that ordinary buy-to-let landlords could not access. Furnished holiday letting (FHL) income counted as relevant earnings for pension contributions, the properties qualified for business asset disposal relief with its 10% CGT rate, and mortgage interest was fully deductible. From 6 April 2025 for income tax and capital gains tax purposes, the regime no longer exists.9GOV.UK. Abolition of the Furnished Holiday Lettings Tax Regime
Former FHL properties are taxed under exactly the same rules as any other residential let. Mortgage interest is restricted to the 20% tax credit, rental income no longer counts as earnings for pension purposes, and sales no longer qualify for business asset disposal relief. Anyone who was building retirement pension contributions around FHL income has lost that route.
Some transitional treatment survives. Existing capital allowances pools can continue to have writing-down allowances claimed against them, though new expenditure from April 2025 falls under the standard property business rules using replacement of domestic items relief. Losses built up in an FHL business before abolition can be carried forward against future UK or overseas property business profits. Business asset disposal relief remains available where the FHL business ceased before April 2025 and met the qualifying conditions, with disposals falling inside the normal three-year window after cessation. An anti-forestalling rule that applied from 6 March 2024 blocks attempts to lock in the old capital gains reliefs through unconditional contracts.
Making Tax Digital Starts in April 2026
From 6 April 2026, landlords with total annual income from self-employment and property above £50,000 must use Making Tax Digital for Income Tax.10GOV.UK. Sign Up for Making Tax Digital for Income Tax It is the biggest administrative shift landlords have faced in years.
You keep digital records of rental income and expenses using compatible software and send quarterly updates to HMRC through the year. At year-end you still submit a final return and pay any tax due by 31 January.11GOV.UK. Making Tax Digital for Income Tax for Sole Traders and Landlords The quarterly updates are new; HMRC will see your rental business in near real time rather than once a year.
Below the £50,000 threshold there is no immediate obligation, though HMRC has said the threshold will drop over time. To sign up you need to be registered for self-assessment already and have filed a return in the last two years. Paper records and basic spreadsheets will not meet the requirement, so anyone currently working that way needs to move to compatible software before April 2026.
Does a Limited Company Structure Still Help?
The Section 24 restriction is what has pushed many landlords toward holding property through a limited company. Companies pay corporation tax at a main rate of 25% on profits above £250,000, and a small profits rate of 19% for profits below £50,000.12GOV.UK. Corporation Tax Rates and Allowances The company can still deduct its full mortgage interest, and for leveraged portfolios that is the single biggest structural advantage over personal ownership.
The maths tends to favour a company where you are a higher-rate taxpayer, heavily mortgaged, and planning to reinvest profits rather than draw them as personal income. Leave profits inside the company and you pay corporation tax only. Extract them as dividends and you pay dividend tax on top; for a higher-rate taxpayer in 2025/26, dividends above the £500 allowance are taxed at 33.75%, which erodes some of the gain.
Transferring existing personally owned properties into a company is not free. It counts as a disposal for capital gains tax and a purchase for stamp duty, so both bills can land at once. For landlords who already own personally, the incorporation cost often outweighs the ongoing saving unless the portfolio is large. A company generally makes more sense for new purchases than for retrofitting an existing portfolio.
Companies also carry ongoing overhead. Annual accounts go to Companies House, corporation tax returns go to HMRC, and company details sit on the public register. Accountancy and compliance fees typically run from several hundred to a couple of thousand pounds a year. The company route is impractical for a single low-value property, but the balance shifts as the portfolio grows.