Buy-to-Let Tax Changes — How Section 24 and Stamp Duty Affect Landlords

The Transformation of Buy-to-Let Taxation

Between 2017 and 2023, the tax treatment of buy-to-let property investment changed fundamentally. Landlords who bought expecting the same tax treatment as the previous generation face substantially higher tax bills and, in some cases, negative net returns.

Understanding these changes is essential for any landlord or prospective property investor.

Section 24: Mortgage Interest Restriction

Before April 2017, landlords could deduct their full mortgage interest cost from rental income, reducing their taxable profit. A higher-rate taxpayer with £10,000 rental income and £8,000 interest cost paid 40% tax on £2,000 = £800.

Under Section 24, phased in from 2017 and fully implemented from April 2020:

• Mortgage interest is **no longer deductible** from rental income
• Instead, landlords receive a **20% basic rate tax credit** on their finance costs
• This means higher- and additional-rate taxpayers pay significantly more tax

**Before Section 24 (higher rate taxpayer):**

• Rental income: £10,000
• Mortgage interest deduction: £8,000
• Taxable profit: £2,000
• Tax at 40%: £800

**After Section 24 (higher rate taxpayer):**

• Rental income: £10,000
• Tax on full income at 40%: £4,000
• Less 20% credit on interest (£8,000 × 20%): (£1,600)
• Net tax: £2,400

The same property that generated £800 in tax now generates £2,400 — a tripling of the tax bill despite the same income and costs.

Income Inflation Effect

Section 24 creates a particularly damaging effect: rental income is assessed at its gross level, potentially pushing a basic rate taxpayer into higher rate tax even when the actual profit is modest.

A landlord with a salary of £35,000 and rental income of £16,000 now has gross income of £51,000 — above the £50,270 higher rate threshold (2024–25). They pay 40% tax on the £730 excess, plus potentially lose personal allowance if gross income reaches £100,000.

The 3% SDLT Surcharge

Since April 2016, buy-to-let purchases attract an additional 3% SDLT on the full purchase price. On a £250,000 property, this adds £7,500 to acquisition costs. On a £500,000 property, it adds £15,000.

From October 2024, the surcharge increased to 5% (Budget 2024). This significantly increases the upfront cost of expanding a portfolio.

Capital Gains Tax

When a buy-to-let property is sold at a profit, CGT is due on the gain:

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

Private Residence Relief does not apply to investment property (only to your main home). Lettings Relief, which previously sheltered up to £40,000 of gain for landlords who had lived in the property, was restricted in 2020 to only apply where the landlord shares occupancy with the tenant.

CGT annual exempt amount was cut from £12,300 to £6,000 in April 2023 and to £3,000 in April 2024, further increasing the CGT exposure on property disposals.

Limited Company Ownership

Many landlords have responded to Section 24 by purchasing new buy-to-let properties through a limited company. Corporations are not subject to Section 24 — they pay corporation tax on rental profits after deducting mortgage interest.

See our guide “Buying Property Through a Limited Company” for a full analysis of the advantages and disadvantages.

What This Means for Yields

The cumulative effect of Section 24, higher SDLT, and increased CGT has materially reduced after-tax returns for higher-rate taxpayer landlords. Many landlords who purchased highly leveraged properties in the 2010s are now operating at a loss on a cash basis or paying tax on income that exceeds actual cash profit.

Prospective buy-to-let investors should model their position using post-tax figures, including:

• SDLT on purchase (at 5% surcharge rate from Oct 2024)
• Section 24 impact on their specific tax position
• CGT on eventual disposal
• Maintenance, void periods, management fees, and compliance costs