The shadow of Section 24 (Finance Act 2015) continues to loom large over the private rental sector. Fully implemented since 2020, its effects are now the "new normal" but still catch new investors off guard.
Under Section 24, individual landlords cannot deduct mortgage interest payments from their rental income to calculate their taxable profit. Instead, they receive a basic rate tax credit (20%) on the interest.
The Impact:
To mitigate Section 24, there has been a massive shift toward purchasing properties within a Special Purpose Vehicle (SPV) Limited Company.
Pros:
1. Full Interest Deductibility: Companies can deduct 100% of mortgage interest as a business expense.
2. Corporation Tax: Tax is paid on profits at Corporation Tax rates (typically 19% for profits under £50k, tapering to 25% for profits over £250k), which is often lower than personal higher income tax rates (40/45%).
3. Reinvestment: Retained profits can be reinvested into new properties without incurring personal income tax.
Cons:
1. Mortgage Rates: Limited company mortgages are typically 0.5% - 1% more expensive than personal ones, though this gap is narrowing.
2. Admin Costs: Annual accounts and confirmation statements incur accountant fees.
3. Extraction: Getting money out of the company (dividends/salary) incurs further personal tax.
In the search for yield, many investors consider Houses in Multiple Occupation (HMOs).
HMOs (Multi-let): Renting individual rooms to unrelated tenants.
The Appeal: Gross yields can reach 10-12%. If one tenant leaves, you still receive rent from others.
The Reality: Higher operating costs (utility bills often included), stricter regulation (licensing, fire doors, room sizes), and higher tenant turnover. It is a business, not a passive investment.
Single Lets: Renting a house/flat to a family or individual.
The Appeal: Lower yield (5-6%) but significantly less hassle. Tenants often stay for years, pay their own bills, and treat the property as a home.
The Reality: If the tenant leaves, income drops to zero instantly (void period).
The fundamental driver of BTL success is tenant demand. In 2026, the UK continues to face a housing shortage. Construction of new homes has not kept pace with population growth and household formation. This supply-demand imbalance continues to push rental prices upward, reaching record highs in many urban centers. This rental inflation has helped offset higher mortgage costs for many landlords.
A "void period" is the time a property sits empty between tenants. While demand is high, voids still happen. Prudent investors forecast for 2-4 weeks of voids per year. Minimizing voids requires keeping the property in good condition and pricing the rent competitively.
Energy efficiency remains a hot topic. Landlords should ensure their properties have an Energy Performance Certificate (EPC) rating of C or above where possible. While government deadlines have shifted in the past, the trajectory is clear: energy-inefficient properties will eventually become unrentable or require expensive retrofitting.
The days of "easy money" in Buy to Let are over. The combination of high property prices, higher interest rates, and tax penalties means you cannot simply buy any property and expect a profit.
However, Yes, it is still worth it, provided you approach it as a business.
Yes, but margins are tighter. Success in 2026 relies on selecting high-yield areas (Northern cities often exceed 6%), utilizing limited company structures for tax efficiency, and considering HMOs for higher cash flow.
Typically 25% of the property value (75% Loan to Value). Some specialist lenders may accept 20%, but interest rates will be significantly higher.
Section 24 restricts landlords from deducting mortgage interest from rental income before tax. Instead, they receive a 20% tax credit. This significantly impacts higher-rate taxpayers, often pushing them into buying via Limited Companies.
A gross yield of 5.5% to 6.5% is considered healthy in the current market. Areas like Nottingham and Manchester often achieve 6-7%, while London averages 3-4%.
For higher-rate taxpayers, a Limited Company is often more tax-efficient as corporation tax (19-25%) is paid on profits, and mortgage interest is fully deductible. However, mortgage rates for companies are slightly higher.
Void periods are times when the property is unoccupied and generating no rent. Landlords should factor in 2-4 weeks of void periods per year when calculating net returns.
HMOs (Houses in Multiple Occupation) generally offer higher yields (often 8-10%+) but come with stricter licensing requirements, higher turnover, and increased management costs compared to single family lets.
Mustafa Bilgic
Mustafa is a financial analyst and property investor with over 15 years of experience in the UK housing market. He specializes in mortgage finance, tax efficiency strategies, and rental yield analysis.