Section 24: Mortgage Interest Relief Changes
The most significant change is Section 24 of the Finance (No. 2) Act 2015, fully implemented from April 2020. Previously, landlords could deduct their mortgage interest payments from rental income before calculating tax. Now, individual landlords receive only a 20% basic-rate tax credit on their mortgage interest.
For basic-rate taxpayers, the impact is minimal. But for higher-rate (40%) and additional-rate (45%) taxpayers, the effective cost of mortgage interest has increased substantially. Some landlords have been pushed into a higher tax bracket because their full rental income is now counted as taxable income, even though a large portion goes to mortgage payments.
Stamp Duty Surcharge
Since April 2016, purchases of additional residential properties — including buy-to-lets — attract a stamp duty surcharge of 3% on top of the standard rates. For a property costing £250,000, this adds £7,500 to your acquisition costs.
This surcharge applies to the entire purchase price, not just the portion above a threshold, making it a significant extra cost for landlords expanding their portfolios. It does not apply when remortgaging, which is one reason why releasing equity through a remortgage can be more cost-effective than buying additional properties for some landlords.
Capital Gains Tax on BTL Sales
When you sell a buy-to-let property at a profit, you are liable for capital gains tax (CGT). The rate for residential property is currently 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. You can deduct certain costs — including purchase costs, selling costs, and qualifying improvement expenses — before calculating the gain.
Since April 2020, landlords must also report and pay CGT on UK property sales within 60 days of completion, rather than waiting until the end of the tax year. This requires careful planning and quick access to the necessary financial information.
Strategies for Managing the Tax Burden
Many landlords have responded to these changes by incorporating — buying new properties through a limited company to benefit from full mortgage interest deductibility against corporation tax. Others have focused on paying down mortgage debt to reduce the impact of Section 24.
Some landlords have sold properties where the tax burden makes the investment unviable, while others have increased rents to offset higher costs. Working with a specialist property tax accountant is essential to develop a strategy that minimises your tax liability within the current rules.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.