Buy to Let Tax Changes and Landlord Tax Deductions

Buy to let taxation covers the tax treatment of rental income, allowable property expenses (repairs, agent fees, insurance), finance costs such as mortgage interest, and capital gains when a property is sold. From an accounting and compliance perspective, we treat: 

(a) Rental receipts as taxable income

(b) Permitted revenue items as deductible against that income

(c) Capital gains under separate CGT rules on disposal. 

We introduce technical terms early so you can follow the strategy: “finance costs restriction” (Section 24), “SDLT additional property surcharge (APRS/HRAD)”, and the FHL (Furnished Holiday Lettings) tax regime.

Since the gradual phasing of mortgage-interest relief under Section 24 has been completed, landlords have been operating on gross rental income and a basic-rate tax credit for finance costs rather than the old deductibility model, a fundamental change that still shapes landlord cashflow and tax planning. (charcol.co.uk)

Over 2024–2025, the Government removed special treatment for Furnished Holiday Lets (FHLs) and adjusted property taxation levers (including SDLT/SDLT surcharge and capital gains tax rates). Those policy moves together, the continuing legacy of Section 24, are the core of the current buy to let tax changes landlords must plan around.

At ARB, we emphasise compliance first, then tax efficiency: we map taxable position, maximise legitimate revenue deductions, and use structural planning (timing of disposals, entity choice, and reliefs) to reduce landlord tax liabilities within the new buy to let rules. 

Throughout this article, we’ll explain what’s changed, what deductions remain available, and the practical strategies landlords should adopt today.

What major buy to let tax changes have taken effect since 2025?

Short answer: three headline shifts have crystallised since 2025 that materially affect landlords’ after-tax returns 

(1) Higher CGT exposure on residential disposals

(2) Tougher property transaction taxes (higher additional-property SDLT/HRAD)

(3) Removal of FHL special tax status, all layered on top of the post-Section-24 regime that already removed mortgage-interest deductibility.

1) Capital Gains Tax on residential property moved up (less favourable basis).

The government set higher headline CGT rates for individuals disposing of residential property (main rates for gains on property now commonly cited at 18% (basic-rate band) and 24% (higher-rate band) for disposals in the current regime), increasing the tax at the point of sale and tightening the return profile for buy-to-let disposals.

Plan disposal timing, use of reliefs (lettings relief is highly restricted), and annual exemptions carefully to reduce exposure. This change to the capital gains tax on a rental property is central to recent buy to let tax changes.

2) Stamp Duty / SDLT additional-property surcharge has been increased and tightened. 

The Chancellor strengthened the additional-property surcharge (the extra % payable where purchasers already own another property) as a disincentive to buy-to-let and second-home purchases; recent policy commentary and briefing note references point to an uplift in the surcharge that landlords must model into acquisition costs. This makes acquisition timing and legal structuring (and whether to buy in a personal name or a special purpose vehicle) more important than ever under the new tax rules for landlords.

3) Furnished Holiday Lettings (FHL) regime abolished for income and CGT from April 2025. 

Properties that previously qualified for FHL tax advantages (capital allowances, availability of certain reliefs) lost that preferential regime from 6 April 2025, so landlords with holiday-let portfolios need to re-assess whether disposals, transfers, or capital allowances claims should be accelerated or restructured before transitional rules bite. The removal of FHL preferential treatment is one of the practical buy to let changes managers must account for.

4) Section 24 remains the operating reality; mortgage interest is not a revenue deduction. 

The finance costs restriction introduced under Section 24 (Finance Act 2015) and implemented through 2017–2020 is the baseline: landlords compute taxable rental profit without deducting most mortgage interest and instead receive a basic-rate (20%) credit on finance costs, a rule that still drives remedial planning (e.g., incorporation, interest-only vs capital repayment mixes, and interest tracing). This section 24 tax loophole UK label circulates in commentary, but the reality is a finance-costs restriction that all landlords must model into cash flow.

Practical impact & numbers to model now: higher CGT headline percentages materially increase disposal tax bills; the additional SDLT surcharge raises upfront acquisition costs; and FHL abolition removes previously reliable relief routes. For any portfolio review, we recommend scenario modelling that includes the revised CGT bands and the additional SDLT layer, and a cashflow stress test showing how Section 24 affects marginal effective tax rates on rental income. (See HMRC CGT and SDLT guidance for exact rate tables when modelling).

How we approach this at ARB: we start with numbers (gross income, allowable expenses, finance costs), run disposal and acquisition tax-impact scenarios using the revised CGT and SDLT parameters, and then present handfuls of compliant options, timing sales to use exemptions, considering incorporation where appropriate, and tightening bookkeeping to ensure no allowable deduction is missed. That blend of tactical and structural work is how we help landlords confront the buy to let tax changes without costly surprises.

READ RELATED ARTICLE: Accounting for Landlords: Bookkeeping Best Practices

How has Section 24 transformed landlord tax deductions?

Section 24 is the central pillar of recent buy to let tax changes: finance costs that were once deductible against rental income, principally mortgage interest, arrangement fees, and most other finance costs, are no longer subtracted when working out taxable rental profit. Instead, those finance costs generate a basic-rate (20%) tax reduction on the tax bill. That mechanical shift changed effective marginal tax rates for leveraged landlords and is one of the most important pieces of the recent buy to let tax changes landscape.

Which landlords are most exposed? Two groups feel the pain most sharply:

• Higher-rate / additional-rate taxpayers, because they now pay income tax on grossed-up rental profits at 40%/45% and only receive a 20% credit on finance costs, widening the gap between tax paid and actual cash profit. This is one of the clear landlord tax changes that has redistributed the tax burden across investor profiles.
  
• Highly-leveraged portfolios is a feature of a feature of the current buy to let tax changes, where mortgage interest forms a large share of running costs, landlords see a much bigger tax bill (the finance-costs restriction bites proportionally more as interest rises). This is why many landlords are re-evaluating their financing in light of the new landlord tax environment.

To make this concrete, consider a short illustrative example (numbers simplified): rental income £30,000; other allowable costs £5,000; mortgage interest £10,000.

• Pre-Section 24: taxable profit = £30,000 − £5,000 − £10,000 = £15,000 → tax @40% = £6,000.
  
• Post-Section 24: taxable profit = £30,000 − £5,000 = £25,000 → tax @40% = £10,000, less 20% basic-rate credit on finance costs (20% of £10,000 = £2,000) → net tax £8,000.
  Net result: the landlord pays an extra £2,000 tax under Section 24 versus the old system, a material cashflow hit, and an increase in the effective tax rate on the same economic profit. (Illustrative calculation).

Because the relief is a tax credit rather than a revenue deduction, Section 24 alters behavioural incentives: landlords are more likely to consider incorporation, refinancing, re-structuring ownership, or accelerating disposals, all typical responses to the evolving buy to let tax changes.

What still counts as deductible? Section 24 applies to finance costs, but many genuine, wholly-and-exclusively letting expenses remain deductible when calculating taxable rental profit: repairs and maintenance, insurance, letting agent fees, council tax (where landlord pays), legal and accountancy fees for the property business, and other revenue costs. Those categories that clear landlord tax deductions are still central to tax-efficiency workstreams.

At ARB, we treat Section 24 as a constraint to plan around (not an opportunity to “avoid” rules). Our method: quantify the Section 24 cash-tax gap across the portfolio, model incorporation breakeven points, and recommend operational changes (refinance timing, tenancy type, and capex vs revenue classification) so landlords can preserve net returns while remaining fully compliant.

READ RELATED ARTICLE: Accountants for Landlords and Rental Property Tax Advice

What tax reliefs and deductions still exist, and how can landlords reduce tax on rental income?

Even after the buy to let tax changes, a clear set of revenue-based reliefs remains available, and these are the levers we use to reduce tax on rental income legally and robustly.

Key allowable expenses you can still deduct (must be wholly and exclusively for the letting):

• Repairs & maintenance (restoring an item to its original state).
  
• Letting agent and management fees, including tenant referencing.
  
• Landlord insurance and buildings/contents cover for the let.
  
• Legal fees for tenancy agreements or eviction costs (revenue in nature).
  
• Accountancy fees for the property business, utility bills paid by the landlord, and services provided to tenants.

HMRC lists these categories and examples; these landlord tax deductions remain the backbone of legitimate tax reduction for landlords.

Replacement of Domestic Items Relief (RDIR), the modern “furniture replacement” rule: since 2016, landlords can claim relief for the replacement (not the initial purchase) of domestic movable items such as sofas, beds, white goods, and crockery. RDIR is a revenue deduction (not capital allowance), so it remains a practical route to reduce taxable rental profits where landlords replace worn-out items between tenancies. Use it consistently and keep invoices documenting replacement (not initial installs). 

Is incorporation the silver bullet? Incorporation (moving properties into a limited company) has become a frequently used structural response to buy to let tax changes because companies:

• Pay corporation tax on profits (rates and marginal relief details are on GOV.UK) rather than individual income tax, and
  
• Can deduct finance costs as expenses for corporation tax purposes, preserving full interest deductibility in many cases

That structural change matters in practice: a rising number of buy-to-let investors are adopting company structures (registered buy-to-let firms numbered in the hundreds of thousands in recent commentary), because the differential between corporation tax treatment and restricted personal reliefs can be substantial for larger portfolios but incorporation also brings transfer SDLT, extraction tax planning and administrative complexity, so it’s not automatically right for smaller landlords. Professional modelling is essential. (The Times)

Other tactical tools landlords can (and do) use to reduce taxable rental income:

• Ownership & income splitting where appropriate, changing legal ownership shares (tenants in common + Form 17) can allocate income to a lower-rate taxpayer within a household. This must be documented and accepted by HMRC.
  
• Loss relief & loss carry-forward: allowable property losses can be carried forward and offset against future property profits (follow HMRC rules on loss claims). (totallandlordinsurance.co.uk)
  
• Pension/salary routing (with a company,) rental income generally does not count as “relevant UK earnings” for personal pension relief, so pension-based relief from pure rental income is limited. However, employer pension contributions from a property-owning company to a director’s pension can be an effective extraction/retention tool where justifiable commercially. Always check relevant earnings rules before relying on pension strategies. (Royal London for advisers)

How ARB turns this into action: We map every deductible line-by-line against HMRC definitions, accelerate reliefs where transitional rules permit (e.g., timing replacements to use RDIR), run incorporation breakeven and extraction models (including SDLT and future CGT impacts), and recommend ownership-split checks that are legally robust (Form 17 evidence). That disciplined, numbers-first approach is how we help landlords navigate the buy to let tax changes while keeping compliance and long-term net return at the centre.

READ RELATED ARTICLE: Rental Income Tax UK Guide for Landlords & Accountants

How do these buy to let tax changes affect landlord profitability and decision-making?

When you translate the buy to let tax changes into cash flow and portfolio decisions, the result is often non-linear: a small rise in finance costs or a single disposal can change whether a property is accretive after tax. Below are the practical channels we watch and the commercial choices they force.

Real examples: how Section 24 + higher tax bands change the cash tax bill

We modelled two short illustrations so you can see the maths and the behavioural consequences (figures simplified for clarity).

Scenario assumptions (single property, annual): rental income £24,000, other allowable revenue costs £4,000 (agents, repairs, insurance), mortgage interest £12,000.

1. Basic-rate taxpayer (20%):
   
   • Pre-Section-24 tax (interest deductible): taxable profit = £8,000 → tax = £1,600.
     
   • Post-Section-24 (interest not deductible; 20% credit on interest): taxable profit = £20,000 → tax before credit £4,000 less 20% credit on interest (£2,400) → net tax £1,600.
     
   • Result: no net change to tax for a straightforward basic-rate case; cashflow effect is neutral for this profile. (Illustrative). (GOV.UK)
     
2. Higher-rate taxpayer (40%):
   
   • Pre-Section-24: taxable profit £8,000 → tax £3,200.
     
   • Post-Section-24: taxable profit £20,000 → tax before credit £8,000 less 20% credit on interest (£2,400) → net tax £5,600.
     
   • Result: £2,400 higher tax under the post-Section-24 regime — a material cashflow hit that reduces net yield and can flip an otherwise profitable investment into a marginal one. (GOV.UK)
     
3. Add rising mortgage costs (interest increases to £15,000): the higher-rate case moves from £5,600 to £5,000 tax (still higher than pre-Section-24), but the direction is clear: higher interest costs increase pre-tax cash outflow and, for higher-rate taxpayers, also increase net tax bills under the post-Section-24 model. (Worked numerics above are illustrative; always run portfolio-level modelling). (UK Finance)

Takeaway: basic-rate owners are cushioned; higher-rate and highly-leveraged landlords face the biggest deterioration in after-tax yield, which leads to different decisions about hold/sell/incorporate.

How rising market costs amplify the tax effect

Interest rates and inflation change the denominator landlords use to measure returns:

• The Bank of England’s Bank Rate around 2025 sits at ~4% (official Bank Rate). Rising base rates historically lift mortgage pricing and the absolute finance costs landlords pay. (bankofengland.co.uk)
  
• Average new buy-to-let mortgage rates were close to 4.99% in Q1 2025, rates that materially change interest bills versus the ultra-low-rate years. Higher finance costs push more landlords into the category where Section 24 increases their net tax burden. (UK Finance)

Combine that with maintenance/repair inflation and regulatory compliance costs (energy upgrades, EPC work), and the total cash-outflow per property can rise quickly, squeezing net yield even before you account for tax. That combination is a core reason the buy to let tax changes have altered investment calculus for many owners.

Total return lens: yield vs capital growth after tax

Good landlord decision-making compares total return after tax and costs (net rent + net capital growth − transaction taxes − compliance/upgrade costs − tax at disposal). Two specific levers have moved recently:

• Upfront transaction drag: additional SDLT/second-home surcharges and higher acquisition costs reduce initial yield and raise the “hurdle” for acceptable yields. Model SDLT in acquisition scenarios.
  
• Exit tax shock: CGT rate changes (18% / 24% bands for disposals from the tax changes introduced in 2024–25) increase the tax cost of selling and reduce after-tax capital appreciation. Incorporate updated CGT rates into any disposal plan.

Putting them together: a 3–4% gross rental yield may no longer be sufficient in many areas once you factor in buy to let tax changes, higher finance costs, EPC upgrade spending, and higher transaction taxes. You must model net yield and after-tax IRR for meaningful decisions.

Common decision points and the ARB approach

When landlords face lower after-tax returns because of these buy to let tax changes, they typically consider four options. Our approach is to quantify all four and stress-test them:

1. Hold but optimise: Tighten expense capture, accelerate RDIR claims (replacing domestic items), renegotiate finance, improve tenant retention to reduce voids. We produce a ledger-level reconciliation to ensure every allowable expense is claimed. (www.rossmartin.co.uk)
   
2. Sell (partial or full): Model the CGT cost at current rates (18%/24%) and compare with forecast rental return. Where the CGT bite is smaller than the long-term drag from regulatory/upgrade costs, the sale may win. We run after-tax proceeds scenarios. (GOV.UK)
   
3. Convert ownership structure (incorporation): Moving the portfolio into a limited company preserves interest deductibility for many mortgage types and means profits are taxed at corporation tax rates rather than higher personal rates. However, incorporation triggers transfer taxes, possible stamp duty, and extraction tax when you withdraw cash later, so we only recommend this after a thorough breakeven analysis. Note: Incorporation activity has accelerated markedly in recent years as landlords sought structural responses to the buy-to-let tax changes. (Property Portfolio Investor)
   
4. Invest to future-proof value: Targeted capital spend on energy efficiency (e.g., loft insulation, efficient heating) can reduce running costs, help meet MEES obligations, and access government grants, but capital spend needs to be modelled against lost rental yield during works and the likely impact on rents and lettability. Government guidance and grant schemes exist to help with some of this spend.

At ARB, we never recommend a one-size-fits-all. We produce a three-scenario financial model (base/downside/tax-optimised) for every portfolio so clients can make an evidence-based choice.

Conclusion

The buy to let tax changes have shifted the economics of residential property investing: Section 24 changes the tax treatment of finance costs, CGT and transaction taxes have become more significant, and regulatory/compliance costs (energy standards) add a new layer of required capital spending. These shifts mean that after-tax yield, not headline rent or gross yield, must be the primary decision metric.

Our practical prescription at ARB:

1. Quantify: Run a portfolio-level cashflow and tax model that incorporates updated CGT rates, SDLT surcharges, and current mortgage pricing.
   
2. Consider structure: Test incorporation breakevens (including SDLT and extraction tax impact) rather than assuming it’s automatically optimal. (Property Portfolio Investor)
   
3. Optimise operations: Tighten receipts and expense capture, use RDIR where applicable, and sequence capex to maximise available relief.
   
4. Future-proof: Factor in MEES and energy-upgrade requirements plus available grants when forecasting hold vs sell choices.
   

If you’d like us to take a closer look, our Southend accountants can create a clear financial model and outline your best options. Just share a few details, and we’ll do the rest.

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