Is Buy-to-Let Still Worth It in 2026?

Written by Miles Udemezue, Commercial Director, Lettd. This article is general information, not tax advice. Speak to a qualified accountant about your own position.

Buy-to-let still works for landlords with low gearing, but it has become significantly harder for anyone with a substantial mortgage. Since April 2020, individual landlords have been taxed on gross rental income with only a basic-rate credit for mortgage interest. From April 2027, rental profits move onto separate, higher tax rates. And Making Tax Digital arrived in April 2026, adding quarterly reporting for larger portfolios.

None of this is avoidable by changing how you let the property. What it does change is how much margin a property needs before it is worth owning at all.

Here is what actually changed, why it feels worse right now than the rules alone suggest, and what options a landlord genuinely has.

What changed, and when

April 2017 to April 2020: Section 24. Under Section 24 of the Finance (No. 2) Act 2015, individual landlords of residential property can no longer deduct mortgage interest as an expense. Instead they receive a tax credit at the basic rate of 20% on finance costs. It was phased in from 2017 and has been fully in force since April 2020.

The mechanics matter. You now pay income tax on your full rental income rather than on rent minus interest. For a higher-rate taxpayer, relief on finance costs dropped from 40% to 20%. For an additional-rate taxpayer, from 45% to 20%.

The credit is capped. HMRC calculates the reduction as 20% of the lowest of three figures: your total residential finance costs, your property business profits, or your adjusted total income above the personal allowance. Any unused portion carries forward.

Section 24 applies to individual landlords, joint owners, partnerships and trusts. It does not apply to commercial property, or to residential property held in a limited company.

April 2025: the Furnished Holiday Let regime was abolished. Until 6 April 2025, a qualifying FHL was exempt from Section 24 and could deduct mortgage interest in full. That exemption is gone. Holiday lets and short lets are now taxed as standard residential property income and are caught by Section 24 in the same way.

If anyone tells you that switching to a holiday let escapes Section 24, that advice is out of date. A surprising amount of it is still circulating online.

April 2026: Making Tax Digital for Income Tax. Since 6 April 2026, landlords with combined property and self-employment income above £50,000 must keep digital records and file quarterly updates to HMRC rather than a single annual return. The threshold drops to £30,000 in 2027 and £20,000 in 2028.

April 2027: separate property income tax rates. Confirmed at Autumn Budget 2025, rental profits will be taxed at 22%, 42% and 47% from 6 April 2027. That is two percentage points above the standard rates at every band. HMRC estimates around 2.4 million landlords will pay more as a result. A higher-rate landlord with £20,000 of annual rental profit pays roughly £400 a year more.

The Section 24 credit is expected to rise to 22% in step with the new property basic rate, which offsets a little of it but not much.

What did not change

Ahead of Autumn Budget 2025 there was widespread speculation about an 8% National Insurance-style levy on rental income, estimated to raise £2 billion to £3 billion a year. It was dropped and did not appear in the Budget.

Rental income remains outside Class 1 and Class 4 National Insurance, because letting property is normally treated as investment income rather than a trade. Worth noting that NI can apply where the activity genuinely amounts to a trade, such as serviced accommodation with substantial services, so this is not a blanket exemption.

Why it feels worse than the rules alone explain

Most landlords I speak to describe the tax as something that changed recently. It did not. Section 24 has been fully in force for six years. Three other things have collided with it.

Refinancing. A landlord who fixed at around 2% before 2022 and refixed at 5% or more has seen their interest bill roughly double. Section 24 magnifies exactly that, because interest is no longer deductible. The rule did not change. The number it applies to did.

Frozen thresholds. The personal allowance is £12,570 and the higher-rate threshold £50,270, both frozen. Because Section 24 taxes gross rental income rather than profit, rising rents push landlords into higher bands faster than they otherwise would. The effect is gradual and cumulative, and no single year feels dramatic.

Administration. Quarterly MTD filing arrived in April 2026 for the larger end of the market. That is not more tax, but it is more work, and it landed in the same period.

So the feeling is accurate even though the diagnosis usually is not. The position has got materially worse. It has just got worse through interest rates, fiscal drag and admin rather than a single new tax.

The four options

1. Hold and absorb it. Viable if gearing is low. A landlord with a small mortgage or none is barely affected by Section 24, because there is little finance cost to restrict. The 2027 rate change still applies, but two points on a profitable property is survivable.

2. Incorporate. Limited companies are outside Section 24 and can still deduct mortgage interest as a business expense, paying Corporation Tax on the profit. This is why a lot of landlords have incorporated since 2017.

It is not a simple fix. Transferring property into a company is a disposal, so it can trigger Capital Gains Tax, and Stamp Duty Land Tax is normally payable on the transfer. Partnership incorporation relief can reduce the SDLT cost where a genuine partnership exists, but that is a technical area. Company buy-to-let mortgages are generally priced higher with additional arrangement fees, and extracting profit from the company is taxed again. This needs an accountant, and the answer differs for basic-rate and higher-rate taxpayers.

3. Sell. Around 93,000 buy-to-let landlords are reported to have exited the market in 2025, so this is what many have concluded.

The obstacle is Capital Gains Tax on disposal, which is what most landlords mean when they say selling is not worth it either. CGT rates on residential property have changed more than once in recent years and the annual exempt amount has been reduced substantially, so check the current position on GOV.UK rather than relying on what was true when you bought. There is also a 60-day reporting and payment deadline after completion for UK residential property disposals.

4. Increase the yield on the property you already own. This is the option most often skipped, because it does not involve a transaction.

None of the tax changes above can be avoided by letting the property differently. Short-let income is caught by Section 24 and will be caught by the 2027 property income rates in exactly the same way as long-let income. Anyone selling short letting as a tax strategy is either behind on the rules or hoping you are.

What changes is the ratio. Section 24 hurts in proportion to how large your finance costs are relative to your rental income. A landlord whose mortgage interest is 70% of rental income is in serious trouble. The same landlord at 30% is inconvenienced rather than damaged. Increasing income does not reduce the tax, but it changes whether the tax is the thing that decides if the property works.

On the properties Lettd manages in Milton Keynes, one bedroom flats that would let for around £974 a month on a tenancy generated an average of £3,089 gross in July 2026, netting roughly £2,047 after platform fees, management fees, cleaning and consumables. July is the strongest month of the year and I do not have a full twelve month cycle to publish yet, so that is not an annual figure. But the mortgage interest on those flats did not change. Only the income did.

Operating costs remain fully deductible, incidentally. Section 24 restricts finance costs only. Cleaning, management fees, insurance, repairs and consumables all still come off in full.

What this does not solve

Being straight about it: higher income means higher gross rental income, which under Section 24 means a higher figure to be taxed on. If the property is already marginal and you add cost without adding much revenue, you can end up worse off. The gap between long-let and short-let net income has to be genuinely large to be worth the extra work, the volatility and the compliance load.

For plenty of properties it is not. Rural and village stock in particular often fails this test in Milton Keynes, because the contractor and corporate demand that makes short letting work here is concentrated around the city's employment sites.

What to actually do

1. Work out your interest cover ratio: annual mortgage interest divided by annual rental income. This single number tells you how exposed you are to Section 24.

2. Ask your accountant to model your position under the April 2027 rates rather than the current ones.

3. If you are considering incorporation, get proper advice before doing anything. The CGT and SDLT costs frequently exceed the benefit for basic-rate taxpayers.

4. If you are considering selling, check the current CGT position on GOV.UK and note the 60-day reporting deadline.

5. Before any of that, check whether the property can simply earn more. It is the only option that does not involve a transaction, a tax event, or a lender.

Frequently asked questions

Is buy-to-let still profitable in 2026? It depends almost entirely on gearing. Landlords with low or no mortgage remain profitable. Heavily mortgaged landlords are squeezed by Section 24, which taxes gross rental income with only a basic-rate credit for mortgage interest, and will be squeezed further by the separate property income tax rates of 22%, 42% and 47% arriving in April 2027.

What is Section 24 and does it still apply? Section 24 of the Finance (No. 2) Act 2015 removed the ability of individual landlords to deduct mortgage interest as an expense, replacing it with a 20% basic-rate tax credit. It was fully in force from April 2020 and remains in effect, with no repeal announced. It applies to individual landlords of residential property, not to limited companies or commercial property.

Do holiday lets and Airbnbs avoid Section 24? No, not since 6 April 2025. Furnished Holiday Lets were previously exempt and could deduct mortgage interest in full, but the FHL regime was abolished and short lets are now taxed as standard property income. Advice suggesting otherwise is out of date.

Will landlords have to pay National Insurance on rental income? Not currently. An 8% National Insurance-style levy on rental income was widely speculated ahead of Autumn Budget 2025 but was dropped. Rental income remains outside Class 1 and Class 4 National Insurance, though NI can apply where the activity amounts to a genuine trade such as serviced accommodation with substantial services.

What are the new property income tax rates from 2027? From 6 April 2027, rental profits will be taxed at 22% basic rate, 42% higher rate and 47% additional rate, two percentage points above the equivalent rates on earned income. This was confirmed at Autumn Budget 2025 and applies to individual, unincorporated landlords.

Should I move my buy-to-let into a limited company? Limited companies are outside Section 24 and can deduct mortgage interest in full. However, transferring property into a company can trigger Capital Gains Tax and Stamp Duty Land Tax, company mortgages are generally priced higher, and extracting profit is taxed again. The answer differs significantly between basic-rate and higher-rate taxpayers. This requires an accountant, not a blog.

Does switching to short letting reduce my tax? No. Short-let income is caught by Section 24 and will be caught by the 2027 property income rates in the same way as long-let income. Short letting can increase income, which improves the ratio of finance costs to rental income and therefore reduces how much damage Section 24 does, but it is not a tax strategy.

Tax rules change and the figures above reflect the position as at July 2026. Confirm current rates and thresholds on GOV.UK. This article is general information and does not constitute tax, financial or legal advice. Take professional advice on your own circumstances before making any decision.