The UK Landlord Tax Guide: Income Tax, Section 24, CGT, and Ltd Co Compared

How Rental Income Is Actually Taxed

Rental profit — income minus allowable expenses like letting agent fees, insurance, repairs, and service charges — gets added to your other income and taxed at your marginal rate: 20% in the basic band, 40% in the higher band, 45% at the additional rate. There's no separate "landlord tax rate." If renting pushes your total income into a higher band, only the portion above the threshold is taxed at that higher rate, per the standard rules HMRC sets out in its guide to paying tax on rental income. Run your own numbers, including how a mortgage and other costs affect the final bill, through our UK income tax calculator.

Section 24: The Mortgage Interest Relief Restriction

This is the change that catches out the most landlords, because it doesn't work the way most people assume. Since April 2020, you can no longer deduct mortgage interest from rental income before calculating your tax bill. Instead, you get a flat 20% tax credit on your finance costs, applied after the tax is calculated. For a basic-rate taxpayer that's roughly a wash — but for a higher-rate taxpayer, it isn't: your rental profit is calculated and taxed as if the interest were never paid, then you claw back only 20% of it, not 40% or 45%. That mismatch is why a heavily-mortgaged portfolio can push a landlord's effective tax rate on rental profit well past their actual income tax band, sometimes into loss-making territory even when the property is cash-flow positive before tax. The mechanics are set out in HMRC's original policy paper on restricting finance cost relief. Our Section 24 tax calculator shows the actual impact on your numbers, by tax band.

Capital Gains Tax When You Sell

Sell a rental property for more than you paid for it (net of buying costs, selling costs, and any capital improvements — not routine maintenance), and the gain is subject to capital gains tax at 18% or 24% depending on your total income for the year, per the current CGT rates on gov.uk. Unlike income tax, there's no waiting for the January self-assessment deadline: UK residential property gains must be reported and the tax paid within 60 days of completion, using HMRC's separate CGT-on-UK-property service — see what you pay CGT on when you sell for the full rules on reliefs and exemptions. Missing that 60-day window brings penalties on top of the tax itself. Model a specific sale, including your annual exempt amount and any improvement costs, with our capital gains tax calculator.

Ltd Company vs Personal Ownership

Buying through a Ltd company sidesteps Section 24 entirely — a company deducts mortgage interest as a normal business expense against its corporation tax bill, currently 19-25% depending on profit, with no 20%-credit restriction. That's the headline attraction, and it's real. What it doesn't do is make the tax disappear: profit left inside the company is taxed at corporation tax rates, and getting that money into your own pocket means extracting it as salary or dividends, which are taxed again on the personal side. For a landlord who wants to reinvest profit and build a portfolio rather than draw income immediately, the deferral can still come out ahead of the Section 24-restricted personal route — but for someone who needs the income now, the two layers of tax can eat most of that advantage. It's also a decision made once, at purchase: moving an already-owned property into a company later means selling it to the company at market value, triggering both stamp duty and capital gains tax as if to an unrelated buyer. Our Ltd Co vs personal calculator runs both structures side by side, including the dividend extraction tax, so the comparison isn't just the headline corporation tax rate.

Which Tax Question Matters Most, and When

Income tax and Section 24 apply every single year you hold the property — they're the ongoing cost of doing business as a landlord. Capital gains tax is a one-off event, but it only happens when you sell, so it shouldn't drive your annual decisions the way the first two do. The Ltd company question is different in kind: it's a structural choice you effectively make once, at acquisition, because unwinding it later costs stamp duty and CGT on top of whatever you were trying to save. In practice that means: check the Section 24 and income tax numbers before every purchase you're financing with a mortgage, model the Ltd co question before you exchange (not after), and treat CGT as a factor in your exit timing and annual exempt-amount planning, not a monthly concern.

Our Approach

We run every acquisition through the income tax and Section 24 numbers before deciding how to finance it, and the Ltd co comparison before deciding how to hold it — the same four calculators linked above are the ones we use ourselves, not a simplified version. If you'd rather have that modelling done for you as part of a wider deal, alongside our stamp duty and rental yield analysis, our investors page covers how that partnership works.

Frequently Asked Questions

Do I pay tax on rental income if I have a mortgage on the property?

Yes. Since Section 24 came into full effect, mortgage interest is no longer deducted before your rental profit is calculated for income tax — you get a 20% tax credit on the interest instead, applied afterwards. That can mean a real tax bill even in a year where the mortgage-adjusted cash flow is thin.

Is there a tax-free allowance for rental income?

Yes, a £1,000 property income allowance exists, but if your actual expenses exceed £1,000 (as they usually do once you include letting fees, insurance, and repairs) it's normally better to claim your real expenses instead, since you can't do both on the same income.

How is Section 24 different from a normal expense restriction?

Most business expenses are deducted before tax is calculated. Section 24 finance costs are deducted after — you get a flat 20% credit against your tax bill rather than the interest reducing your taxable profit. For anyone taxed above the basic rate, that's a materially worse outcome than a straight deduction.

Do I pay capital gains tax if I sell at a loss?

No — a loss can be used to offset other gains in the same tax year or carried forward against future gains, but there's no CGT to pay or report as tax due on a loss itself (a loss on a UK residential property still needs reporting within the same 60-day framework if you're required to report other gains that year).

Does buying through a Ltd company avoid capital gains tax on sale?

No. A company pays corporation tax on the gain when it sells, not personal CGT — a different tax, not an exemption. And extracting the proceeds afterwards as dividends is taxed again on top.

Can I move my existing personally-owned properties into a Ltd company to avoid Section 24?

Only by selling them to the company at market value, which triggers stamp duty land tax and capital gains tax as though you'd sold to a stranger. For an existing portfolio, that upfront cost usually needs to be weighed very carefully against the ongoing Section 24 saving — it's rarely a clean win.

Key Takeaways

• Rental profit is taxed at your marginal income tax rate — 20%, 40%, or 45% — with no separate landlord rate.
• Section 24 replaced the mortgage interest deduction with a 20% tax credit, which can push a higher-rate taxpayer's effective rate on rental profit well above their income tax band.
• Capital gains tax on a UK residential property sale must be reported and paid within 60 days of completion, separately from your annual self-assessment.
• A Ltd company avoids the Section 24 restriction but adds a second layer of tax when profit is extracted as dividends — it's a net win for some landlords, not all.
• Ltd co structuring is effectively a one-time decision: converting an existing personal portfolio triggers stamp duty and CGT as if selling to an unrelated buyer.
• Income tax and Section 24 apply every year you hold; CGT applies once, at sale; the Ltd co question should be settled before you buy, not after.

This guide is for general information only and does not constitute tax or financial advice. Tax rules and rates change, and your personal circumstances affect which route is best for you — speak to a qualified accountant or tax adviser before making a decision based on any of the figures above.