UK Buy to Let Tax for High Earners: What Changed and What Still Works

If you're a high-earning landlord, you'll know that Section 24 mortgage interest relief has fundamentally changed how rental property taxation works. Since 2020, the rules have shifted significantly, and understanding these changes is crucial to managing your tax bill effectively.

Section 24 Mortgage Interest Relief: Basic Rate Only Since 2020

Before 2020, landlords could claim mortgage interest relief at their marginal rate of tax. A higher rate taxpayer with £1,000 monthly mortgage interest could claim £400 in relief (40% of £1,000). Now, all landlords claim at just 20%, regardless of their tax bracket. That same £1,000 now yields only £200 in relief—a £200 annual shortfall for each £1,000 of interest.

The Impact on Higher Rate Taxpayers

This restriction hits higher rate taxpayers hardest. Consider a 40% taxpayer with £20,000 rental income and £8,000 mortgage interest. Previously, they'd claim £3,200 relief. Today, it's £1,600. That's an additional £1,600 tax bill annually—essentially a 20% increase in effective tax on that income.

Using a Ltd Company Structure

Many high earners now hold properties through a limited company. The advantages are real: you claim mortgage interest at corporation tax rate (19%) rather than income tax (40%), and rental profits stay within the company structure. A landlord earning £50,000 with £20,000 mortgage interest could save roughly £2,000 by using a company.

But there are downsides. You'll pay corporation tax on profits, and extracting money via dividends creates additional tax. There's also the administrative overhead and, critically, you'll face capital gains tax when selling—whereas individual ownership offers principal private residence relief in some circumstances.

Capital Gains Tax on Disposal

When you sell, residential property attracts CGT at 18% (basic rate) or 24% (higher rate). A higher rate taxpayer selling a property with a £50,000 gain faces a £12,000 bill. This is often overlooked in acquisition planning.

Furnishings Relief: What Replaced Wear and Tear

The 10% wear and tear allowance ended in 2016. It's been replaced by a more restrictive relief for replacing furnished items. You can now only claim actual replacement costs—no uplift for general wear and tear. A £800 sofa replacement yields a £800 deduction; nothing more.

What Still Works

You can still claim genuine business expenses: maintenance, repairs, insurance, letting agent fees, and accountancy costs. Mortgage interest at basic rate remains claimable. For many, the company route still makes sense despite its complexities.

Our property planner tool can help you model these scenarios against your specific circumstances. Visit /en-GB/tools/property-planner to run your figures.