Landlord Tax Guide 2026: Section 24, Capital Gains & Tax Planning

If you’re a higher-rate taxpayer with a buy-to-let mortgage, Section 24 has probably already hit your wallet — hard. What used to be a straightforward expense deduction has turned into a tax headache that’s costing some landlords thousands of pounds a year more than they expected.

But here’s the thing: there are legitimate ways to manage it. Whether you’re wondering about SPV structures, trying to work out your capital gains exposure, or just want to make sure you’re claiming every allowable expense, this guide covers the tax essentials every UK landlord needs to know in 2026.

Understanding Section 24: The Mortgage Interest Tax Restriction

Section 24, introduced in April 2020, fundamentally changed how landlords claim mortgage interest relief. This legislation has had a significant impact on higher-rate taxpayers and remains one of the most controversial tax changes affecting the property sector.

What Changed Under Section 24?

Before Section 24, landlords could deduct their mortgage interest payments as an allowable expense from their rental income before calculating their tax bill. This meant that if you earned £20,000 in rental income and paid £8,000 in mortgage interest, you would only pay tax on £12,000.

Section 24 abolished this system. Now, mortgage interest is no longer deductible as an expense. Instead, landlords receive a basic-rate tax credit (currently 20%) on their mortgage interest payments. This means you pay tax on your gross rental income before mortgage costs, then receive a 20% credit against your final tax bill.

The Impact on Higher-Rate Taxpayers

The effect is particularly severe for higher-rate (40%) and additional-rate (45%) taxpayers. Let’s look at an example:

Before Section 24:

Rental income: £30,000
Mortgage interest: £12,000
Taxable profit: £18,000
Tax at 40%: £7,200

After Section 24:

Rental income: £30,000
Mortgage interest: £0 (no longer deductible)
Taxable profit: £30,000
Tax at 40%: £12,000
Less 20% tax credit on mortgage interest: £2,400
Net tax: £9,600

In this scenario, the landlord’s tax bill has increased by £2,400 (33%) purely due to Section 24. Even worse, the higher gross income may push some landlords into higher tax brackets, trigger child benefit clawbacks, or reduce their personal allowance.

Who Is Affected by Section 24?

Section 24 applies to residential property landlords who own properties in their own name (as individuals or in partnerships). It does not apply to:

Properties owned through a limited company (SPV)
Commercial property landlords
Furnished holiday lets (which have different tax treatment)

This distinction has led many landlords to restructure their portfolios, which we’ll discuss later in this guide.

Capital Gains Tax on Property Sales

When you sell a rental property, any profit you make is subject to capital gains tax (CGT). Understanding how CGT works is crucial for effective tax planning, especially if you’re considering selling properties or restructuring your portfolio.

How Capital Gains Tax Is Calculated

Capital gains tax is charged on the profit you make when you sell a property, not the total sale price. The calculation is:

Sale price - Purchase price - Allowable costs - Annual CGT allowance = Taxable gain

For 2025/26, the capital gains tax allowance is £3,000 per person. This means the first £3,000 of gains are tax-free.

CGT Rates for Property

Property CGT rates are higher than other asset classes:

Basic-rate taxpayers: 18%
Higher-rate and additional-rate taxpayers: 24%

If the gain pushes you from basic to higher rate, the portion within the basic-rate band is taxed at 18%, with the remainder at 24%.

Reducing Your CGT Liability

There are several legitimate ways to reduce your capital gains tax bill:

1. Private Residence Relief If you lived in the property as your main home at any point, you may qualify for private residence relief for that period, plus the final 9 months of ownership.

2. Lettings Relief Although significantly reduced in recent years, lettings relief may still apply if you shared occupancy with tenants.

3. Use Both Spouses’ Allowances If you own property jointly with a spouse or civil partner, you can each use your £3,000 annual allowance, doubling your tax-free gain to £6,000.

4. Timing Sales Across Tax Years Selling properties in different tax years allows you to use multiple years’ annual allowances.

5. Offset Losses If you’ve made losses on other asset sales, these can be offset against property gains.

6. Keep Detailed Records of Improvement Costs Capital improvements (extensions, conversions) can be deducted from your gain. Keep all receipts and invoices for work that adds lasting value to the property.

Allowable Expenses for Landlords

Despite Section 24’s restrictions on mortgage interest, many expenses remain fully deductible against rental income. Understanding what you can and cannot claim is essential for accurate tax returns and minimising your tax liability.

Fully Allowable Expenses

You can deduct the following costs in full:

Property maintenance and repairs: Fixing broken boilers, repairing roofs, redecorating to the same standard
Insurance: Buildings, contents, and landlord liability insurance
Letting agent fees: Management fees, tenant finding fees, rent collection charges
Legal and professional fees: Accountancy fees for preparing rental accounts, legal fees for tenancy agreements (but not for purchasing the property)
Utilities and services: If you pay council tax, water, gas, electricity on behalf of tenants
Ground rent and service charges: For leasehold properties
Advertising: Costs of advertising for tenants
Travel expenses: Mileage for property inspections and maintenance (45p per mile for first 10,000 miles, 25p thereafter)

The Repairs vs. Improvements Distinction

This is a critical area where many landlords make mistakes. Repairs are allowable; improvements are not.

Repairs (allowable): Restoring something to its original condition—fixing a broken window, repairing a leaking pipe, redecorating to the same standard.

Improvements (not allowable): Adding value or upgrading beyond the original specification—installing double glazing where there was single glazing, adding an extension, upgrading a kitchen beyond like-for-like replacement.

Improvements cannot be deducted from rental income but can be offset against capital gains when you sell the property.

The Replacement of Domestic Items Relief

Since April 2016, the “wear and tear allowance” for furnished properties was replaced with relief for the actual cost of replacing furnishings and equipment. You can claim the cost of replacing (but not the initial purchase of):

Furniture (beds, sofas, tables)
Appliances (fridges, washing machines, ovens)
Kitchenware, crockery, and cutlery
Carpets and floor coverings
Curtains and blinds

The relief covers the cost of a like-for-like replacement. If you upgrade (e.g., replacing a basic fridge with a premium model), you can only claim the cost equivalent to a like-for-like replacement.

Special Purpose Vehicle (SPV) Structures

Many landlords have moved their property portfolios into limited companies—often called Special Purpose Vehicles (SPVs)—to mitigate the impact of Section 24 and benefit from other tax advantages.

Tax Benefits of SPV Ownership

1. Full Mortgage Interest Deductibility Properties owned through a limited company are not affected by Section 24. You can deduct mortgage interest as a business expense in full, just as you could pre-2017 as an individual.

2. Corporation Tax Rates Companies pay corporation tax (currently 25% for profits over £250,000, 19% for profits below £50,000, with marginal relief in between), which is often lower than higher-rate income tax (40%) or additional-rate tax (45%).

3. Flexibility in Income Extraction As a company director, you can choose when and how to extract profits—via salary, dividends, or leaving profits in the company for reinvestment. This provides greater control over your personal tax position.

4. No National Insurance on Rental Income Rental income through a company doesn’t trigger National Insurance contributions (though director’s salary and employment income does).

Drawbacks of SPV Ownership

SPV structures aren’t right for everyone:

1. Higher Mortgage Rates Buy-to-let mortgages for limited companies typically have higher interest rates than personal mortgages.

2. Transfer Costs Moving existing properties into a company triggers stamp duty land tax (SDLT) and potentially capital gains tax, which can be prohibitively expensive.

3. Extraction Taxes When you extract profits from the company as personal income (via dividends), you pay dividend tax on top of corporation tax, potentially creating a “double tax” effect.

4. Compliance Costs Running a limited company involves additional accountancy fees, Companies House filings, and corporation tax returns.

5. Loss of CGT Allowances and Reliefs Companies don’t benefit from annual CGT allowances or private residence relief. When you sell a property through a company, the profit is taxed as income at corporation tax rates, with further tax when you extract those funds personally.

When Does an SPV Make Sense?

SPV structures typically benefit:

Higher-rate taxpayers acquiring new properties (where no transfer costs apply)
Landlords planning significant portfolio expansion
Investors who want to retain profits in the business rather than extracting income
Those with long-term property investment strategies

For properties you already own personally, the transfer costs often outweigh the benefits unless you have a very large, highly geared portfolio.

Furnished Holiday Lets: A Different Tax Treatment

Furnished holiday lets (FHLs) occupy a unique position in the tax system, with several advantages over standard residential buy-to-let properties.

FHL Tax Benefits

Properties qualifying as FHLs benefit from:

Full mortgage interest deductibility: FHLs are exempt from Section 24 restrictions
Capital gains tax advantages: Access to Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), reducing CGT to 10% on qualifying disposals
Capital allowances: You can claim capital allowances on furniture and equipment, rather than just replacement relief
Pension contributions: FHL profits count as relevant earnings for pension contribution purposes

Qualifying Criteria

To qualify as a furnished holiday let, your property must:

Be furnished
Be located in the UK or European Economic Area
Be available for commercial letting as holiday accommodation for at least 210 days per year
Be actually let for at least 105 days per year
Not be let to the same person for more than 31 consecutive days for more than 155 days in the year

These criteria are strict, and HMRC scrutinises FHL claims carefully. Keep detailed records of bookings, availability calendars, and marketing efforts.

Record Keeping: Your First Line of Defence

Accurate record-keeping isn’t just good practice—it’s a legal requirement. HMRC can request to see records going back up to six years, and inadequate records can result in penalties, estimated assessments, and denied expense claims.

What Records to Keep

Maintain the following for each property:

Income records:

Rental income received (with dates and amounts)
Deposits received and returned
Tenant details and tenancy agreements

Expense records:

All receipts and invoices for deductible expenses
Bank statements showing property-related transactions
Mileage logs for property-related travel
Credit card statements for property purchases

Capital transactions:

Purchase documents (contracts, SDLT returns)
Mortgage statements and loan agreements
Improvement invoices (for CGT purposes)
Sale contracts and completion statements

Digital Record Keeping

Making Tax Digital (MTD) for Income Tax is being rolled out for landlords with gross property income over £50,000 (from April 2026) and £30,000 (from April 2027). Even if you’re not yet required to use MTD, digital record-keeping offers benefits:

Easier retrieval of records for HMRC enquiries
Automated income and expense tracking
Reduced risk of lost receipts
Simplified year-end accounting

Cloud accounting software like Xero, QuickBooks, or FreeAgent can integrate with bank feeds and make record-keeping significantly easier.

When to Get Specialist Help

If you’ve got one straightforward rental property, you might manage the tax yourself. But once things get even slightly complicated, the cost of getting it wrong far outweighs the cost of getting help. Here’s when you should seriously consider talking to a specialist:

You Should Consider Specialist Help If:

You’re a higher-rate taxpayer affected by Section 24
You’re considering restructuring into an SPV
You’re selling properties with significant capital gains
You own furnished holiday lets
You have commercial property alongside residential
You operate through multiple structures (personal ownership, partnerships, companies)
You’ve received an HMRC enquiry or compliance check
Your portfolio generates gross rental income over £50,000
You’re unclear about repairs vs. improvements
You’re planning significant property purchases or sales

A specialist property accountant can help you:

Structure your portfolio tax-efficiently
Maximise allowable expense claims
Plan property sales to minimise CGT
Navigate Section 24 restrictions
Prepare accurate tax returns and defend them in HMRC enquiries

At Severn Accounting, we specialise in property and landlord taxation, helping Worcester and Birmingham landlords navigate Section 24, plan capital gains tax, and structure their portfolios efficiently. Our property specialists understand the unique challenges facing landlords and provide practical, commercially-focused advice.

Key Takeaways

Section 24 has significantly increased tax bills for higher-rate taxpayer landlords by restricting mortgage interest relief to a 20% tax credit.
Capital gains tax on property sales can be substantial (18%-24%), but careful planning—using spousal allowances, timing sales, and claiming all eligible reliefs—can reduce your liability.
Allowable expenses remain fully deductible (except mortgage interest), but you must understand the repairs vs. improvements distinction and keep detailed records.
SPV structures offer tax advantages but involve upfront costs and ongoing compliance requirements. They work best for new acquisitions by higher-rate taxpayers.
Furnished holiday lets receive preferential tax treatment but must meet strict qualifying criteria.
Accurate record-keeping is essential—keep all receipts, invoices, and records for at least six years.
Professional advice pays for itself when you’re dealing with complex portfolios, restructuring decisions, or significant capital gains.

Property is still one of the best ways to build long-term wealth — but only if you’re actively managing your tax position, not just hoping for the best. The landlords who do well are the ones who understand the rules, plan ahead, and get proper advice when the numbers get complicated.

Need Expert Property Tax Advice?

If Section 24 is eating into your returns, or you’re thinking about selling, restructuring, or expanding your portfolio, it’s worth getting proper advice before you make any big moves. We work with landlords across Worcester and Birmingham every day, and we’ll give you a straight answer about what your options are.

Call us on 07950 244741 or email info@severnaccounting.co.uk for a free consultation. No obligation, no sales pitch — just honest advice about your property tax position.

Worcester Office: 1 Shaw Street, Shaw Mews, Worcester, WR1 3QQ
Birmingham Office: Colmore Row, Birmingham, B3 2BJ

See our property and landlord accounting services or get in touch to book a chat. You might also find our guides on self-assessment tax returns and Making Tax Digital for landlords useful.