Buy-to-Let Tax Changes in 2026: What Landlords Need to Know

The tax landscape for buy-to-let investors continues to evolve, and staying informed is essential for protecting your returns. Whether you are a first-time landlord or an experienced portfolio investor, these are the key tax changes affecting buy-to-let property in 2026.

Stamp duty surcharge

The additional property surcharge currently stands at 5% on top of standard stamp duty rates. This applies to all buy-to-let purchases and second homes, making the upfront cost of investing significantly higher than for residential buyers.

For a £250,000 buy-to-let purchase, you would pay approximately £12,500 in stamp duty (including the surcharge). Use our stamp duty calculator to work out the exact figure for your intended purchase price.

The surcharge was increased from 3% to 5% in late 2024 and there is currently no indication of a reduction. Landlords purchasing through a limited company are also subject to the same surcharge.

Mortgage interest tax relief

Since April 2020, landlords can no longer deduct mortgage interest from rental income before calculating tax. Instead, you receive a 20% tax credit on mortgage interest payments. This particularly affects higher-rate and additional-rate taxpayers, who effectively pay more tax than before the change.

For example, if your rental income is £15,000 per year and your mortgage interest is £8,000, you are taxed on the full £15,000 rather than £7,000. The 20% tax credit on the £8,000 interest (£1,600) then reduces your tax bill, but higher-rate taxpayers still pay considerably more than under the old system.

This change has been one of the driving factors behind landlords considering limited company buy-to-let structures, where full mortgage interest deduction against profits is still permitted.

Capital gains tax

When you sell a buy-to-let property, you will pay Capital Gains Tax on any profit:

• 18% for basic-rate taxpayers
• 24% for higher-rate taxpayers

The annual CGT allowance has been reduced to just £3,000 per person (down from £12,300 in 2022/23). For married couples or civil partners who co-own property, this means a combined allowance of £6,000 — still far less generous than previous years.

Landlords looking to sell should consider timing carefully and make use of any available reliefs. Our guide to capital gains tax explained covers the current rules in detail.

Income tax on rental profits

Rental income is added to your other income and taxed at your marginal rate (20%, 40%, or 45%). You can deduct allowable expenses including:

• Letting agent fees
• Maintenance and repair costs
• Insurance premiums (landlord and buildings)
• Accountancy fees
• Ground rent and service charges

If you are self-employed or have other complex income streams, it is worth working with an accountant to ensure you are claiming all available deductions.

Limited company structures

Many landlords are now purchasing through a limited company (Special Purpose Vehicle) to benefit from:

• Full mortgage interest deduction against profits
• Corporation tax at 25% rather than personal income tax at up to 45%
• More flexibility in profit extraction through dividends
• Better inheritance tax planning opportunities

However, limited company buy-to-let mortgages typically carry slightly higher interest rates than personal buy-to-let products, and there are additional costs including accountancy, corporation tax returns, and Companies House filing fees. The decision depends on your personal circumstances, tax position, and long-term strategy.

What this means for landlords in 2026

The cumulative effect of these tax changes means landlords need to be more strategic than ever. Key considerations include:

• Run the numbers carefully — use our mortgage calculator and affordability calculator to model different scenarios
• Review your ownership structure — a limited company may or may not make sense depending on your income level and portfolio size
• Consider your mortgage type — interest-only buy-to-let mortgages keep monthly costs low but do not reduce the capital owed
• Plan for CGT — if you are considering selling, factor in the reduced allowance
• Stay compliant — ensure your properties meet all safety and regulatory requirements

For a comprehensive overview of the buy-to-let mortgage landscape, read our ultimate UK buy-to-let mortgage guide.

Get expert advice

Tax and mortgage decisions are closely connected, and the right financing structure can make a significant difference to your overall returns. Our experienced advisers at Option Finance help landlords across the UK navigate these changes and find the most competitive buy-to-let mortgage deals.

Speak to our team for a free, no-obligation review of your buy-to-let finances, or call us on 01332 470 400.