Buy-to-Let in 2026: Is It Still Worth It After the Tax Changes?

Buy-to-let has become meaningfully less tax-efficient for individual landlords over the past decade, and further changes are already confirmed for 2027. Here’s an honest look at where things stand and what the numbers actually look like.

Section 24: still the central issue

Since April 2020, individual landlords can no longer deduct mortgage interest from rental income before calculating tax. Instead, they receive a flat 20% tax credit on finance costs, regardless of their actual tax band. For basic-rate taxpayers, this is broadly neutral compared with the old system. For higher and additional-rate taxpayers, it’s a significant real cost - the old system gave 40% or 45% relief on interest; the new system caps it at 20% for everyone.

A worked example of the real impact

A landlord earning £48,000 from employment, receiving £18,000 gross rental income with £12,000 in mortgage interest, has a real rental profit of only £6,000 once the mortgage interest is paid. But because Section 24 taxes the full £18,000 (with only a 20% credit on the £12,000 interest applied afterward), this landlord can end up paying around £2,400 more tax a year than the old system would have charged - on a property that’s making them only £6,000 in genuine annual profit.

Why Section 24 can push you into a higher tax band you’re not actually earning

Because mortgage interest is no longer deducted before your taxable rental profit is calculated, your headline income for tax purposes is higher than your genuine cash profit - potentially pushing you over the £50,270 higher-rate threshold, or affecting your Personal Savings Allowance, Child Benefit, or pension annual allowance taper, even though your actual take-home income hasn’t changed (see our ISA & SIPP series articles on these thresholds for the individual mechanics).

The change already confirmed for April 2027

From 6 April 2027, property income will be taxed at new, higher rates specifically - 22% basic rate, 42% higher rate, and 47% additional rate - a 2 percentage point rise across the board. Crucially, the Section 24 mortgage interest restriction remains in place, meaning the gap between what a higher-rate landlord pays and what they’d pay with full interest deductibility will widen further from this date.

Furnished Holiday Lets: no longer a workaround

Furnished Holiday Lets were previously exempt from Section 24, allowing full mortgage interest deduction. This regime was abolished from 6 April 2025 - holiday lets are now taxed like standard rental properties, closing off what had been a common strategy for landlords to retain full interest relief.

The limited company alternative

Properties held within a limited company are not subject to Section 24 - the company deducts mortgage interest in full as a business expense before paying Corporation Tax (19% on profits up to £50,000, 25% above £250,000, with marginal relief between). This is why many new buy-to-let purchases are now made through a company structure. However, transferring an existing personally owned property into a company triggers Capital Gains Tax and Stamp Duty Land Tax as if selling to a third party - meaning incorporation is generally only worthwhile for larger portfolios or new purchases, not simply moving one existing property, unless you can access Incorporation Relief (which, from April 2026, must be actively claimed rather than applying automatically) and typically requires a substantial portfolio to qualify in practice.

Other levers landlords use to manage the impact

• Reducing mortgage borrowing where possible - lower interest costs directly reduce the Section 24 disadvantage, since there’s less interest being only partially relieved, though refinancing to a lower amount is a more document-heavy process if you’re self-employed and getting a mortgage rather than employed.
• Transferring a share of ownership to a lower-earning spouse (via a signed Form 17 with HMRC) to use their lower tax band.
• Reviewing whether high loan-to-value borrowing on a specific property still makes financial sense given the combined effect of Section 24 and the confirmed 2027 rate rise.

The bottom line

Buy-to-let remains viable for many landlords, particularly basic-rate taxpayers and those with lower borrowing relative to property value, but the tax environment has become considerably less favourable for higher-rate, highly-geared individual landlords - and the confirmed 2027 rate rise, combined with the unchanged Section 24 restriction, will widen that gap further. This is a genuinely different investment case than buy-to-let was a decade ago, and worth modelling carefully against your specific numbers rather than relying on outdated assumptions.