Landlord Tax 2026: Section 24, Capital Gains and Making Tax Digital — The Complete Guide

If you own rental property in the UK, 2026 is not a year to take your eyes off the ball. Three major tax issues are hitting landlords simultaneously — and most property owners we speak to are either underprepared, overpaying, or both.

This guide covers everything you need to know: the Section 24 mortgage interest restriction, capital gains tax on property sales, the Making Tax Digital deadline that hits landlords from April 2026, and — crucially — what you can legally do to reduce your tax bill.

We have written this for landlords who want straight answers, not watered-down summaries. So let’s get into it.

Part One: Section 24 — The Mortgage Interest Restriction

What Is Section 24?

Section 24 of the Finance Act 2015 fundamentally changed how landlords are taxed on their rental income. Before April 2017, individual landlords could deduct their full mortgage interest from their rental income before calculating tax. That meant if you received £20,000 in rent and paid £12,000 in mortgage interest, you were only taxed on £8,000.

That is no longer how it works.

Under Section 24, you can no longer deduct mortgage interest as a cost. Instead, you receive a basic rate (20%) tax credit on the interest you pay. For a basic rate taxpayer, this makes little difference. For a higher rate or additional rate taxpayer, the impact is substantial — and has pushed many landlords into higher tax bands simply because their rental income now appears higher on paper than it actually is.

A Real Example

Let us make this concrete. Say you receive £30,000 in rental income and pay £18,000 in mortgage interest:

Before Section 24:
Taxable profit: £30,000 − £18,000 = £12,000
Tax at 40%: £4,800

After Section 24:
Taxable income: £30,000 (full rental income, no deduction for interest)
Tax at 40%: £12,000
Less 20% credit on £18,000 interest: −£3,600
Tax payable: £8,400

That is an extra £3,600 in tax on the same property with the same mortgage. For landlords with multiple properties and significant mortgages, this difference can run into tens of thousands of pounds.

Who Is Affected and Who Is Not

Section 24 applies to individual landlords — including those who own property in their personal name or jointly with a spouse or partner. It applies to all residential property income including buy-to-let, houses in multiple occupation (HMOs) and holiday lets.

It does not apply to landlords who hold property within a limited company. Companies are still able to deduct mortgage interest as a genuine business expense. This is the primary reason why many landlords are exploring incorporation — but as we explain below, it is not a simple decision.

What Costs Can You Still Deduct?

While mortgage interest is restricted, many other legitimate expenses remain fully deductible:

  • Letting agent fees and management charges
  • Maintenance and repairs (but not improvements)
  • Buildings and contents insurance
  • Ground rent and service charges
  • Accountancy fees directly related to the rental business
  • Council tax, utilities and other costs you pay as the landlord
  • Travel costs for property inspections (at HMRC approved rates)
  • Legal fees for tenant disputes or lease renewals

Getting your allowable expenses right is one of the most effective ways to reduce your tax liability. Many landlords miss expenses they are entitled to claim.

Should You Incorporate to Escape Section 24?

This is the question we hear most often. The honest answer is: it depends, and it is more complicated than most online guides suggest.

Incorporating your property portfolio into a limited company can eliminate the Section 24 problem. However, transferring property into a company is treated as a disposal at market value, which can trigger:

  • Capital Gains Tax on the difference between the purchase price and current market value
  • Stamp Duty Land Tax (SDLT) at the higher rates applicable to company purchases
  • Potential loss of any existing mortgage deals (most residential mortgages cannot be transferred to a company)

For some landlords — particularly those with lower-value properties, small mortgages, or newer portfolios — incorporation makes excellent financial sense. For others, the upfront costs outweigh the ongoing tax savings for many years.

There is no universal right answer. This is exactly the kind of decision that needs proper professional advice, with full calculations based on your specific portfolio, income and circumstances.

→ Book a free landlord tax review with Britvex Advisory — we will work through the numbers with you and give you a clear recommendation.

Part Two: Capital Gains Tax on Property Sales

The 60-Day Reporting Rule

This is the rule that trips up more landlords than almost anything else. When you sell a UK residential property and there is a capital gain, you must:

  1. Report the gain to HMRC using the online Capital Gains Tax on UK Property service
  2. Pay any CGT due
  3. Both of the above within 60 days of completion

This is not 60 days from when you exchange contracts. It is 60 days from legal completion — and it applies even if you have not yet filed your annual Self Assessment tax return.

The penalty for missing the 60-day deadline starts at £100 and increases significantly over time. HMRC has been actively enforcing this rule, and ignorance is not considered a valid excuse.

CGT Rates on Residential Property in 2026

From April 2024, the CGT rates on residential property were reduced. In 2026 the rates are:

  • Basic rate taxpayers: 18% on residential property gains
  • Higher and additional rate taxpayers: 24% on residential property gains

Your CGT rate is determined by your total income in the tax year of the disposal, including the gain itself. This means a basic rate taxpayer who makes a large gain may find part of it taxed at the higher rate.

The Annual CGT Allowance — Now Much Smaller

The Annual Exempt Amount — the amount of gain you can make tax-free each year — has been significantly reduced in recent years. For 2025/26, the allowance is just £3,000, down from £12,300 just a few years ago.

For married couples or civil partners who own property jointly, each person has their own annual allowance, potentially giving £6,000 in combined exemption. For unmarried couples or joint owners, the same principle applies — the gain is split according to ownership percentage.

What Reduces Your CGT Bill?

Several legitimate reliefs and deductions can reduce the capital gain:

  • Purchase costs — the original price you paid, including SDLT and legal fees at purchase
  • Improvement costs — capital expenditure that enhanced the property (not routine repairs)
  • Selling costs — estate agent fees, legal fees, and other disposal costs
  • Private Residence Relief (PRR) — if the property was ever your main home, you may be entitled to relief for the period it was your primary residence, plus the final nine months
  • Letting Relief — in limited circumstances where PRR also applies
  • Annual Exempt Amount — the first £3,000 of gains is tax-free

Planning a Property Sale — Timing Matters

The tax year in which you complete a sale determines when CGT is due. Timing a sale to fall into a tax year where your income is lower — for example, after retirement, after a career change, or in a year of significant losses — can materially reduce your CGT bill.

Similarly, if you and a spouse or civil partner own the property jointly, making sure the ownership split is optimised before sale can be highly effective. Transfers between spouses are exempt from CGT, which means you can adjust the ownership percentage before completing a sale — potentially at no immediate tax cost.

→ Speak to Britvex Advisory about CGT planning before you sell — timing and structuring a sale correctly can save you thousands.

Part Three: Making Tax Digital for Landlords

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax (MTD for IT) is HMRC’s programme to move the UK tax system to digital record-keeping and quarterly reporting. For landlords, it represents the biggest change to how you manage your tax affairs since Self Assessment was introduced.

When Does It Apply to Landlords?

The rollout is phased by income level:

  • From 6 April 2026: Landlords (and self-employed individuals) with total gross income over £50,000 must comply
  • From April 2027: The threshold drops to £30,000
  • From April 2028: Further extension to those earning over £20,000 (legislation pending)

The £50,000 threshold applies to your gross rental income — not your profit. So if your properties generate £55,000 in rent but your costs bring profit down to £15,000, you are still caught by MTD from April 2026.

What Does MTD Actually Require?

Under MTD for Income Tax, landlords must:

  1. Keep digital records of all rental income and expenses using MTD-compatible software
  2. Submit four quarterly updates to HMRC per tax year, summarising income and expenses for each quarter
  3. Submit an End of Period Statement (EOPS) at the end of the tax year confirming the figures
  4. Submit a Final Declaration replacing the traditional Self Assessment return

Paper records are no longer acceptable. Spreadsheets are acceptable only if they are linked to compatible software through a digital connection — you cannot simply type totals into a standalone spreadsheet and submit.

What Software Do You Need?

HMRC has a list of approved MTD-compatible software. The most widely used options are:

  • Xero — excellent for landlords with multiple properties, strong reporting features
  • QuickBooks — user-friendly, good mobile app for tracking income on the go
  • Sage — more complex but powerful for larger portfolios
  • FreeAgent — popular with smaller landlords, integrates with several banks

The right choice depends on the size of your portfolio, how hands-on you want to be, and whether you are working with an accountant who has a preferred platform.

The Soft Landing — What It Means

HMRC has confirmed a soft landing for the 2026/27 tax year. This means no penalty points will be issued for late quarterly submissions in the first year. However — and this is critical — you still need to register and submit. The soft landing does not mean you can ignore MTD until 2027. It simply means the penalty points system will not be activated for the first year’s submissions.

From 2027/28, the full penalty points regime kicks in. Each missed quarterly submission earns one penalty point. Four points in a 12-month period triggers a £200 fine. Further points mean further fines.

What Action Do You Need to Take?

  • Check whether your gross rental income exceeds £50,000 — if yes, MTD applies from April 2026
  • Choose and set up MTD-compatible software before 6 April 2026
  • Register for MTD with HMRC (your accountant can do this on your behalf)
  • Start keeping digital records from 6 April 2026
  • Make your first quarterly submission by the relevant deadline

→ Britvex Advisory handles full MTD registration, software setup and quarterly submissions for landlords — contact us now before the April 2026 deadline.

Part Four: Other Landlord Tax Issues Worth Knowing in 2026

Furnished Holiday Lets — Major Rule Change

From April 2025, the Furnished Holiday Let (FHL) tax regime was abolished. Properties that previously qualified as FHLs — and benefited from capital allowances, business asset disposal relief, and pension contribution advantages — are now treated as standard residential lettings for tax purposes.

If you own holiday let properties, you should review your tax position urgently. The loss of FHL status has significant implications for ongoing income tax and for any future sale of the property.

Rent-a-Room Relief

If you let a room in your main home, you can receive up to £7,500 per year tax-free under Rent-a-Room relief. This applies to furnished accommodation in your only or main home. You do not need to be a mortgaged homeowner — it applies to tenants who sublet as well, subject to any restrictions in your own tenancy agreement.

Wear and Tear Allowance — No Longer Available

The old wear and tear allowance for furnished properties was abolished in 2016. Since then, landlords can only claim for the actual cost of replacing furnishings. The replacement domestic items relief allows you to claim the cost of like-for-like replacements of furniture, appliances and other domestic items — but not the initial purchase of those items.

Joint Ownership and Income Splitting

Rental income from jointly owned property is normally split 50/50 for tax purposes, regardless of the actual financial contribution of each owner. However, if you and your spouse or civil partner own property in unequal shares and wish to be taxed in those proportions, you can make a Form 17 election to split income in line with actual ownership.

This can be particularly effective where one partner is a basic rate taxpayer and the other is a higher rate taxpayer — allocating more income to the lower earner reduces the overall tax bill on the same rental income.

How Britvex Advisory Helps Landlords

Landlord tax is one of the most complex areas of UK personal taxation. Section 24, CGT, MTD, FHL changes, incorporation decisions — getting any one of these wrong can be expensive. Getting them right can save you a significant amount of money.

At Britvex Advisory, we work with landlords across the UK — from single-property owners to multi-unit portfolio investors. Our approach is straightforward: we understand your situation, we calculate the numbers properly, and we give you clear recommendations.

We handle everything from annual Self Assessment returns and CGT reporting to full MTD compliance and strategic tax planning. All on a fixed monthly fee — so you always know exactly what you are paying.

→ Explore our landlord tax services

→ Book a free 30-minute consultation

→ Check your MTD obligations for April 2026

Frequently Asked Questions

What is Section 24 and how does it affect landlords?

Section 24 restricts mortgage interest relief for individual landlords. Instead of deducting the full mortgage interest from rental income, you can only claim a 20% tax credit — meaning higher-rate taxpayers pay significantly more tax on rental profits.

Do landlords need to register for Making Tax Digital in 2026?

Yes — landlords with gross rental income over £50,000 must register for Making Tax Digital for Income Tax from 6 April 2026. This requires quarterly digital submissions to HMRC in addition to the annual tax return.

How long do I have to report capital gains tax on a property sale?

You must report and pay Capital Gains Tax on UK residential property within 60 days of completion. This applies even if you have not yet filed your annual Self Assessment return.

Can I avoid Section 24 by putting my properties in a limited company?

Limited companies are not subject to Section 24 restrictions. However, incorporating involves potential CGT and SDLT costs on transfer, so a careful cost-benefit analysis is essential before making any decisions.