Buy-to-Let Tax UK: Section 24, the 2027 Rise and CGT on Sale

If you own a buy-to-let in your own name, the rental profit is added to your other income and taxed with it. In 2026-27 that means 20%, 40% or 45% depending on your band, and from 6 April 2027 property income has rates of its own. Profit is rent less allowable costs such as letting agent fees, insurance, repairs, ground rent, service charges and accountancy. Repayments of mortgage capital are never deductible, and mortgage interest is dealt with separately under Section 24. If your gross rent is £1,000 or less, the property allowance covers it.

How does Section 24 work?

Since 6 April 2020, after a phase-in that began in April 2017, landlords who own residential property personally cannot deduct mortgage interest or other finance costs from their rent. Instead they get a tax reduction at the basic rate, 20% in 2026-27, on the lowest of three figures: their finance costs, their property profits, and their income other than savings and dividends above the personal allowance. Finance costs not relieved in one year carry forward to the next. Former furnished holiday lets have been under the same rule since April 2025. Companies are outside it and deduct interest as an expense.

In 2026-27 that means a higher-rate landlord is taxed at 40% on the rent that pays the interest, but relieved at only 20% on the interest itself.

What changes for landlords in April 2027?

• Property rates: from 6 April 2027 property income is taxed at 22%, 42% and 47%, 2 points above the rates on earnings. They apply in England, Wales and Northern Ireland; Scottish taxpayers' rent is taxed at Scottish rates, and the Scottish Parliament is being given its own power over property rates.
• Relief at 22%: the Section 24 tax reduction rises to match the new property basic rate.
• Personal allowance order: the allowance must be set against earnings, pensions and trading profit before rent, then savings, then dividends, so it cannot be placed against rent to avoid the higher property rates.

Take a landlord with a £60,000 salary, £20,000 of rental profit before interest and £8,000 of mortgage interest. The salary already fills the basic-rate band, so all the rent is taxed at the higher rate:

• 2026-27: £20,000 × 40% = £8,000, less a reduction of £8,000 × 20% = £1,600, leaves £6,400.
• 2027-28: £20,000 × 42% = £8,400, less £8,000 × 22% = £1,760, leaves £6,640, which is £240 more.
• Before Section 24: with the interest deducted, the bill at 2026-27 rates would be £12,000 × 40% = £4,800.

In both years the tax takes more than half of the £12,000 left once the interest is paid.

How is capital gains tax charged when you sell?

The gain is the sale price less what you paid and allowable costs such as legal fees, stamp duty and improvements. After the £3,000 annual exempt amount, gains on residential property are taxed at 18% on the part that fits within your unused basic-rate band and 24% on the rest, with the gain added on top of your income for that year.

The deadline is what catches people out. A UK resident who sells a UK residential property with capital gains tax to pay must report the sale and pay the tax within 60 days of completion, through a Capital Gains Tax on UK property account, rather than waiting for the tax return. HMRC can charge interest and penalties if either is late.

What other taxes and rules apply?

• Stamp duty: buying an additional home in England or Northern Ireland costs 5 points on top of the standard rates, up from 3 points on 31 October 2024. Scotland and Wales have their own taxes.
• Making Tax Digital: since 6 April 2026, landlords and sole traders with combined gross income over £50,000 have had to keep digital records and send HMRC quarterly updates. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028.
• Companies: a company pays corporation tax on rental profit and deducts interest as an expense, so neither Section 24 nor the new property rates apply, but profits taken out as dividends are taxed again.

CoreFi's Budget page works out what the April 2027 change costs you from your own rent and interest. Whether to hold property personally or through a company, or to sell, depends on your circumstances, and a qualified adviser can advise.