Landlords
Buy-to-Let in 2026: Is It Still Worth It After Section 24?
⚡ QUICK ANSWER
Section 24 is the tax rule that restricts mortgage interest relief to 20% for individual landlords, regardless of your actual tax bracket. For basic-rate taxpayers with yields above 5.5%, buy-to-let can still work. For higher-rate taxpayers with mortgaged properties, profitability is severely eroded — you pay tax on phantom profit you never actually receive. The Autumn Budget added CGT at 18-24% and raised the SDLT surcharge to 5%. If you already own BTL, you probably stay. If you are thinking of starting, think hard about holding structure and entry price. New landlord incorporations hit record highs in 2025.
Buy-to-let investment in the UK has undergone a fundamental shift. The industry celebrated the end of the casual landlord era long ago — 2015 saw that with Section 24. But 2025 marked something sharper: 93,000 landlords exited the rental market, a 43% increase on 2023-24. The reasons are straightforward. Tax has compressed margins. Regulation is tightening. Yields, while higher than they were, still leave higher-rate taxpayers with an effective return barely above inflation.
BTL Market Reality — April 2026
93,000
landlords exited the rental market in 2025 — a 43% increase on the previous year
Homenicom / UK Finance, 2025
41%
of remaining landlords plan to sell within the next 12 months
NRLA Survey, late 2024
How does Section 24 actually destroy a higher-rate landlord’s return?
Section 24 of the Finance Act 2015 fundamentally changed how individual landlords are taxed. Before 2017, you could deduct mortgage interest from rental income. Now you cannot. Instead, you receive a basic-rate (20%) tax credit on your mortgage interest, regardless of your actual tax bracket.
For a basic-rate taxpayer, this is painful but manageable. You pay tax at 20%, and you get relief at 20%. It balances. For a higher-rate taxpayer, it is a catastrophe. You pay tax at 40%, but you get relief at 20% only. The gap — 20% — comes out of your cash flow.
Annual rent: £12,000
Mortgage interest (5.5% on £180k): £9,900
Other costs (maintenance, insurance, void): £1,200
Taxable profit: £900
Tax at 40% (higher rate): £360
Section 24 relief at 20%: £1,980
Net relief received: £1,980
The issue becomes worse at scale. A higher-rate landlord with multiple properties can end up paying more tax than their actual cash profit. Landlords report phantom profit pushing them into even higher tax brackets or Personal Allowance cliffs.
What did the Autumn Budget change for landlords?
On 30 October 2024, the government raised Capital Gains Tax rates for residential property. The SDLT surcharge on investment properties also rose from 3% to 5%.
| Tax change | Old rate | New rate | Impact on £100k gain |
|---|---|---|---|
| CGT (basic-rate) | 10% | 18% | +£8,000 |
| CGT (higher-rate) | 20% | 24% | +£4,000 |
| SDLT surcharge | 3% | 5% | +£6,000 on £300k purchase |
⚠️ SDLT APPLIES TO ALL ADDITIONAL PROPERTIES
This includes holiday homes, second homes, and all BTL purchases by individuals who already own residential property. The surcharge applies on top of the base SDLT rate. On a £500,000 purchase, you now pay 5% surcharge plus base rate, totalling up to 10%+ in some bands.
Are yields actually high enough to make BTL work?
Gross yields hit 6.8% across the UK by late 2025, up from 5.2% two years earlier. On the surface, this looks good. But gross yield is not your return.
| Region | Gross yield | Est. net yield (after costs) | Higher-rate landlord after-tax |
|---|---|---|---|
| North East / Wales | 8.5% | 4.8-5.2% | 2.5-3.0% |
| Manchester / North West | 7.2% | 4.0-4.5% | 2.0-2.5% |
| Midlands | 6.8% | 3.8-4.2% | 1.8-2.3% |
| London (outer) | 5.5% | 3.0-3.5% | 1.2-1.8% |
| London (central) | 4.2% | 2.0-2.5% | 0.5-1.2% |
| South East | 5.0% | 2.8-3.2% | 1.3-1.8% |
Notice the third column. A higher-rate landlord in Manchester with a 7.2% gross yield nets less than 2.5% after tax. The same investor in central London is barely above 1%. For context, fixed-income savings accounts offer 4-5% with zero void risk, no maintenance surprises, no regulatory compliance burden.
Does holding BTL through a limited company fix the tax problem?
Companies get full mortgage interest relief — Section 24 does not apply to them. But the structure has costs and trade-offs.
| Factor | Individual | Limited company |
|---|---|---|
| Mortgage interest relief | 20% credit only | 100% deduction (full relief) |
| Tax on profit | Income tax 20-45% | Corporation tax 19-25% |
| Distribution tax | N/A | Dividends taxed at 20%+ |
| Acquisition SDLT | 5% surcharge + base | 0% surcharge on company purchase |
| Disposal tax | CGT 18-24% | Corporation tax 19-25% |
| Incorporation cost | N/A | £500-£1,500 (accountant fees) |
Incorporation is not free. You pay CGT on the gain made to date when you transfer property. For a £200,000 property bought at £150,000, that is £9,000-£12,000 in immediate tax. But for new purchases or portfolios over £500,000, the ongoing relief typically pays for incorporation within 3-5 years.
More telling: 66,587 new BTL companies were formed in 2025, up 11% year-on-year. That is landlords voting with their accountants’ fees.
Should you hold, sell, or buy in 2026?
Hold the property if: you bought before 2015 with substantial equity, you expect capital appreciation above 3-4% per year, your property is in a tight rental market with low void risk, or you are a basic-rate taxpayer with net yield above 3.5%.
Seriously consider selling if: you are a higher-rate taxpayer with a mortgaged property and net yield below 2%, your capital could get 5%+ in fixed income without void risk, you are in a slow-growth area with high vacancy risk, or regulatory compliance (Renters’ Rights Act 2025, EPC C by October 2030) would require significant capital spend.
Do not start with a new purchase unless: you can structure it via limited company, gross yield is 7%+, you have at least 30% equity, and you have a 15+ year holding horizon. The individual landlord model is broken above £300k-£500k of portfolio value.
What portfolio moves actually matter if you already own BTL?
1. Get your tax structure right. If you hold multiple properties as an individual at higher rate, you are leaving thousands on the table. A BTL accountant costs £500-£1,500 annually. Incorporation might save £3,000-£8,000 per year on a £300,000-£500,000 portfolio.
2. Do not let void periods destroy your yield. A 10% void rate (one month per year) cuts your net yield in half. If you are seeing longer gaps between tenants, reduce rent to market rate, invest in energy efficiency improvements, or sell.
3. Plan for capital expenditure before it becomes emergency spend. Boiler failure in January. Roof leak in a winter storm. Unplanned spend of £5,000-£8,000 destroys a year of profit. Budget 1-2% of property value annually. Understanding which of your properties needs attention and planning upgrades before they fail is where condition assessment tools matter.
4. Regulatory compliance is mandatory. The Renters’ Rights Act takes full effect 1 May 2026: no more section 21 evictions (except in narrow circumstances), rent increases capped to once per year, tenants can challenge increases at tribunal. EPC C compliance is mandatory by 1 October 2030. Budget for energy improvements now rather than scrambling in 2028-29 when supply is tight and costs are high.
✅ NET YIELD MATH THAT MATTERS
Gross yield is rent / property price. Net yield subtracts: maintenance (1-2% annually), void periods (2-4%), property management (8-10% if outsourced), buildings insurance (0.3-0.5%), and ground rent/service charges on flats. A £300,000 property at 6% gross yield generates £18,000 rent annually. Typical costs eat 35-40% before tax. Then Section 24 eats your relief. What looks like 6% becomes 2% or less in your pocket.
Frequently asked questions
If I sell now, what is my CGT bill?
It depends on your gain and tax band. Basic-rate: 18% of profit above £3,000 annual exemption. Higher-rate: 24%. If you have a £100,000 gain and are a higher-rate taxpayer, you owe roughly £23,300 after exemption. But selling a non-appreciating property might free up capital to reinvest elsewhere — a 5% fixed bond is safer and more profitable than a 1.5% BTL yield.
Should I refinance to a fixed or tracker rate if rates fall?
Section 24 relief does not change with interest rate type. You get 20% relief either way. If rates fall, fixing for 5 or 10 years protects your cash flow from future rises. In April 2026, BTL fixed rates are running 5.5-6.0% for 5-year terms, with some trackers at 2.5%+ above base.
Is Scotland or Wales a better bet with higher yields?
Gross yields in parts of Wales and the North East hit 8.5%, versus 5.5% in outer London. But transaction costs are similar (5% SDLT surcharge still applies), void risk in some areas is real, and tenant pools are smaller. Higher gross yield does not always equal higher net return if void risk or tenant quality is worse.
What does the Renters’ Rights Act 2025 mean for my cash flow?
From 1 May 2026: you cannot use section 21 eviction notices (except in narrow prescribed circumstances), rent increases are capped to once yearly with tenant challenge rights, and you must provide statutory information to tenants. Plan for slower turnover and more tenant-friendly lease terms. Properties in weak markets may see rent stagnation.
What if I became a basic-rate taxpayer — would BTL suddenly make sense again?
Yes, materially. At basic rate, Section 24 is far less painful because relief at 20% matches your marginal rate. If you expect your income to drop (retirement, sabbatical, redundancy), deferring major decisions until that happens can change the maths significantly. A property with 3.5% net yield becomes reasonable for a basic-rate taxpayer but remains poor for a 40% taxpayer.
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