Buy-to-Let Tax Changes: How the Rules Have Shifted

A Changed Landscape

The tax landscape for buy-to-let landlords has shifted significantly since 2015. A series of changes have increased the tax burden on individual landlords, changed how mortgage interest is treated, and raised the costs of acquiring additional properties. Understanding these changes is essential for anyone in — or considering — the buy-to-let market.

Section 24: Mortgage Interest Restriction

The biggest change for landlords. Since April 2020, individual landlords can no longer deduct mortgage interest from their rental income as an expense. Instead, they receive a 20% tax credit on their finance costs.

Why It Matters

For basic rate taxpayers, the effect is neutral — you lose a 20% deduction but gain a 20% credit. For higher rate taxpayers, it is a significant tax increase:

Example: Landlord with £30,000 rental income and £15,000 mortgage interest

Under old rules (higher rate taxpayer):

• Taxable profit: £15,000
• Tax at 40%: £6,000

Under new rules:

• Taxable profit: £30,000
• Tax at 40%: £12,000
• Tax credit (20% × £15,000): -£3,000
• Net tax: £9,000

Additional tax: £3,000 per year.

The Hidden Impact

Section 24 also inflates your "income" for tax threshold purposes. The full rental income (before finance costs) counts towards:

• Higher rate threshold calculations
• The £100,000 Personal Allowance taper (you lose £1 of allowance for every £2 above £100,000)
• High Income Child Benefit Charge

This can push landlords into higher bands and trigger additional charges, even though their actual cash profit has not increased.

Stamp Duty Surcharge

Since April 2016, purchases of additional residential properties (including buy-to-lets) attract a surcharge above the standard SDLT rates. This was originally 3% and increased to 5% from October 2024.

On a £250,000 property, the surcharge alone adds £12,500 to the purchase cost. This significantly affects the economics of buy-to-let investment.

Capital Gains Tax Changes

CGT rates on residential property have been adjusted over recent years:

• The annual exempt amount was reduced from £12,300 to £6,000 (2023/24) and then to £3,000 (2024/25 onwards)
• The 60-day reporting and payment requirement (introduced 2020) means CGT must be paid much sooner than before

Wear and Tear Allowance Abolished

Before April 2016, furnished let properties could claim a 10% wear and tear allowance — a deduction of 10% of net rental income regardless of actual expenditure. This was replaced with Replacement of Domestic Items Relief, which only allows deductions for items actually replaced.

Energy Efficiency Requirements

Rental properties must meet minimum Energy Performance Certificate (EPC) standards. Currently, a minimum of EPC rating E is required. The government has proposed raising this to EPC C in future, which could require significant investment from landlords.

While energy improvement costs may be deductible as repairs or claimed through other reliefs, the upfront cost is substantial.

What Landlords Can Do

Review Your Structure

For heavily mortgaged portfolios, holding properties through a limited company may be more tax-efficient (companies can still deduct mortgage interest in full). However, transferring existing properties triggers Stamp Duty and potential CGT — the numbers must be run carefully.

Maximise Allowable Expenses

Claim every legitimate expense: repairs, insurance, letting agent fees, travel, accountancy costs. Every deduction reduces your taxable rental profit.

Plan Capital Gains

Use your annual CGT exempt amount (£3,000), offset losses, and time disposals to manage your tax band. If you are planning to sell, consider spreading sales across multiple tax years.

Keep Impeccable Records

With multiple taxes to manage and complex rules around finance costs, good records are essential.

Accounted helps landlords track income, expenses, and mortgage interest across their portfolio.

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The rules have changed — make sure your strategy has too. Sign up for Accounted and let Penny help you navigate buy-to-let tax in 2026.