Is buy-to-let still profitable in 2026?

Marginally. The combination of Section 24 mortgage interest cap (full removal of deductibility, replaced with 20% basic-rate credit), 5% SDLT surcharge on second properties, 18-24% CGT on disposal, and now Renters Rights Act 2025 restrictions has materially narrowed BTL profitability. Cash-buyer landlords still profitable; high-leverage (75%+ LTV) landlords often loss-making after tax in 2026.

Section 24 of the Finance Act 2015 (phased in 2017-2020) removed full deductibility of mortgage interest against rental income for individual landlords. Instead, a 20% basic-rate tax credit is given on mortgage interest. Effect: higher-rate landlords pay 40-45% tax on gross rental profit minus mortgage interest, then get only 20% credit back. Loss-making in many cases.

Should I own BTL personally or via Ltd company?

Depends on income + leverage + portfolio scale. Personal ownership: simpler, lower transaction cost, CGT 18-24% with AEA. Ltd company: full mortgage interest deductibility, 19-25% Corporation Tax on profits, but harder to extract retained profits (dividend tax 10.75-39.35%), and SDLT 5% surcharge still applies. Generally: 1-2 properties → personal; 3+ properties + higher-rate income → Ltd worth considering.

What does the Renters Rights Act 2025 change?

Major restrictions on landlords from October 2025. Key changes: abolition of Section 21 "no fault" evictions, rent increase limits (once per year, market-rate justification required), mandatory property standards (Decent Homes), tenants can challenge rent increases at FTT, blanket discrimination on benefits/children banned, longer notice periods for many eviction reasons. Effective shift in balance from landlord to tenant.

What's the SDLT 5% surcharge?

Raised from 3% to 5% on 31 October 2024 (Autumn Budget 2024). Applied to second/additional residential property purchases, including BTL. A £250,000 BTL purchase: standard SDLT £2,500 + 5% surcharge £12,500 = £15,000 total. Reclaimable if main residence sold within 3 years (limited situations). See our SDLT refund calculator .

What CGT do I pay when I sell a BTL?

For 2026/27: 18% basic-rate band, 24% higher-rate band. £3,000 Annual Exempt Amount per individual. Must be reported + paid within 60 days of completion (since April 2020). Letting Relief largely removed (only where landlord lived in property at any point + co-residing with tenant). PPR Relief applies for any period property was main residence + final 9 months.

How is rental profit calculated for tax?

Rental income - allowable expenses = taxable profit. Allowable: agent fees, repairs/maintenance, insurance, ground rent, council tax (if paid by landlord), accounting fees, utility costs (if landlord pays), advertising. NOT allowable: capital improvements (added to base cost for CGT), mortgage principal payments (mortgage interest treated separately under Section 24). Personal landlords get 20% basic-rate credit on mortgage interest.

Can I claim Rent-a-Room scheme for a BTL?

No - Rent-a-Room (£7,500/year tax-free) only applies to letting furnished rooms in your own main residence. BTL income is treated as separate property income with standard expense deduction rules. The £1,000 property allowance applies (alternative to expense deduction if gross rent under £1,000).

How does HMRC find out about rental income?

Many ways: Land Registry transaction matches, mortgage lender reports, council tax records, deposit protection scheme data (DPS, MyDeposits, TDS), tenant declarations for housing benefit, tip-offs. HMRC Connect system cross-references databases automatically. Undeclared rental income almost always discovered eventually - voluntary disclosure under Let Property Campaign reduces penalties dramatically.

Should I incorporate my existing BTL portfolio?

Complex calculation. Triggers CGT on transfer to Ltd (treated as disposal at market value), SDLT on full property value, plus refinancing costs. Worth considering for higher-rate taxpayers with 4+ properties intending to grow portfolio. Below 4 properties usually not worth the transition cost. Get specialist tax advice - typical fee £500-£2,000 for portfolio review + projection.

Practical guide

UK Buy-to-Let Landlord Complete Guide 2026/27

Complete UK buy-to-let landlord guide for 2026/27 covering Section 24 mortgage interest restrictions, SDLT 5% surcharge, Renters Rights Act 2025 changes, rental income tax, CGT on disposal, and Ltd company vs personal ownership decisions.

The state of UK BTL in 2026

The combined effect of policy changes over the last decade has materially reduced BTL profitability:

Section 24 (phased 2017-2020): Mortgage interest deductibility removed for individual landlords
SDLT 5% surcharge (raised October 2024): Up from 3% on additional properties
CGT alignment (October 2024): All property gains at 18%/24%
Renters Rights Act 2025 (October 2025): Section 21 abolished, rent rise limits
AEA cut to £3,000: From £12,300 in 2022/23

Net effect: cash-buyer landlords still profitable; high-leverage (75%+ LTV) landlords increasingly loss-making after tax.

Rental income tax calculation

For an individual landlord (not Ltd company):

Calculate gross rental income for tax year
Subtract allowable expenses (agent fees, repairs, insurance, etc.)
The result is taxable rental profit - added to your other income at marginal rate
Separately, get 20% basic-rate credit on mortgage interest paid

Worked example: £18,000 rental income, £4,000 expenses, £8,000 mortgage interest, higher-rate (40%) taxpayer:

Taxable rental profit: £18,000 - £4,000 = £14,000
Income Tax at 40% on £14,000: £5,600
Less 20% mortgage interest credit on £8,000: -£1,600
Net tax due: £4,000
Cash profit (rent - expenses - interest - tax): £18,000 - £4,000 - £8,000 - £4,000 = £2,000

Ltd company comparison

Same scenario via Ltd company:

Rental income: £18,000
Less expenses + full mortgage interest: £18,000 - £4,000 - £8,000 = £6,000 profit
Corporation Tax at 19%: £1,140
Cash profit retained in company: £4,860
To extract, additional dividend tax 10.75%-39.35% applies

Ltd company approximately doubles after-tax profit at higher-rate level, but creates complexity + extraction cost.

SDLT 5% surcharge mechanics

Property price	Standard SDLT	+5% surcharge	Total SDLT
£200,000	£1,500	£10,000	£11,500
£300,000	£5,000	£15,000	£20,000
£500,000	£15,000	£25,000	£40,000
£750,000	£27,500	£37,500	£65,000

Renters Rights Act 2025 impact

From October 2025 (Royal Assent + commencement order):

Section 21 abolished: No more "no fault" 2-month notice evictions
Rent rises: Maximum once per year, must be market-justified, tenant can challenge at First-tier Tribunal
Decent Homes standard: Now legally enforceable in private rented sector
Discrimination ban: Cannot blanket-reject benefit recipients, families with children, or any protected characteristic
Notice periods extended: Various longer notice periods for landlord-initiated end of tenancy
Database of landlords: Compulsory landlord registration (date TBC)

CGT on BTL disposal

2026/27 rates: 18% basic-rate band, 24% higher-rate band. £3,000 AEA per individual.

Worked example: BTL purchased £180,000 in 2015, sold £280,000 in 2026:

Gain: £100,000
Less AEA: £97,000
Higher-rate CGT 24%: £23,280
Must report + pay within 60 days of completion via gov.uk/report-and-pay-cgt

Frequently asked questions

Is buy-to-let still profitable in 2026?
Marginally. The combination of Section 24 mortgage interest cap (full removal of deductibility, replaced with 20% basic-rate credit), 5% SDLT surcharge on second properties, 18-24% CGT on disposal, and now Renters Rights Act 2025 restrictions has materially narrowed BTL profitability. Cash-buyer landlords still profitable; high-leverage (75%+ LTV) landlords often loss-making after tax in 2026.
What is Section 24?
Section 24 of the Finance Act 2015 (phased in 2017-2020) removed full deductibility of mortgage interest against rental income for individual landlords. Instead, a 20% basic-rate tax credit is given on mortgage interest. Effect: higher-rate landlords pay 40-45% tax on gross rental profit minus mortgage interest, then get only 20% credit back. Loss-making in many cases.
Should I own BTL personally or via Ltd company?
Depends on income + leverage + portfolio scale. Personal ownership: simpler, lower transaction cost, CGT 18-24% with AEA. Ltd company: full mortgage interest deductibility, 19-25% Corporation Tax on profits, but harder to extract retained profits (dividend tax 10.75-39.35%), and SDLT 5% surcharge still applies. Generally: 1-2 properties → personal; 3+ properties + higher-rate income → Ltd worth considering.
What does the Renters Rights Act 2025 change?
Major restrictions on landlords from October 2025. Key changes: abolition of Section 21 "no fault" evictions, rent increase limits (once per year, market-rate justification required), mandatory property standards (Decent Homes), tenants can challenge rent increases at FTT, blanket discrimination on benefits/children banned, longer notice periods for many eviction reasons. Effective shift in balance from landlord to tenant.
What's the SDLT 5% surcharge?
Raised from 3% to 5% on 31 October 2024 (Autumn Budget 2024). Applied to second/additional residential property purchases, including BTL. A £250,000 BTL purchase: standard SDLT £2,500 + 5% surcharge £12,500 = £15,000 total. Reclaimable if main residence sold within 3 years (limited situations). See our <a href="/sdlt-3-percent-refund-calculator" class="underline">SDLT refund calculator</a>.
What CGT do I pay when I sell a BTL?
For 2026/27: 18% basic-rate band, 24% higher-rate band. £3,000 Annual Exempt Amount per individual. Must be reported + paid within 60 days of completion (since April 2020). Letting Relief largely removed (only where landlord lived in property at any point + co-residing with tenant). PPR Relief applies for any period property was main residence + final 9 months.
How is rental profit calculated for tax?
Rental income - allowable expenses = taxable profit. Allowable: agent fees, repairs/maintenance, insurance, ground rent, council tax (if paid by landlord), accounting fees, utility costs (if landlord pays), advertising. NOT allowable: capital improvements (added to base cost for CGT), mortgage principal payments (mortgage interest treated separately under Section 24). Personal landlords get 20% basic-rate credit on mortgage interest.
Can I claim Rent-a-Room scheme for a BTL?
No - Rent-a-Room (£7,500/year tax-free) only applies to letting furnished rooms in your own main residence. BTL income is treated as separate property income with standard expense deduction rules. The £1,000 property allowance applies (alternative to expense deduction if gross rent under £1,000).
How does HMRC find out about rental income?
Many ways: Land Registry transaction matches, mortgage lender reports, council tax records, deposit protection scheme data (DPS, MyDeposits, TDS), tenant declarations for housing benefit, tip-offs. HMRC Connect system cross-references databases automatically. Undeclared rental income almost always discovered eventually - voluntary disclosure under Let Property Campaign reduces penalties dramatically.
Should I incorporate my existing BTL portfolio?
Complex calculation. Triggers CGT on transfer to Ltd (treated as disposal at market value), SDLT on full property value, plus refinancing costs. Worth considering for higher-rate taxpayers with 4+ properties intending to grow portfolio. Below 4 properties usually not worth the transition cost. Get specialist tax advice - typical fee £500-£2,000 for portfolio review + projection.