Section 24 in 2026: Why UK Landlords Are Selling Up and Investing Overseas

Section 24 Has Changed the Maths Permanently

Since Section 24 reached full implementation in April 2020, 145,000 UK landlords sold at least one property in 2024 alone (Hamptons International, 2025). That's not a blip. It's the sixth consecutive year of net landlord exits from the UK market. The reason is straightforward: for higher-rate taxpayers, UK buy-to-let now generates negative real returns after tax on leveraged purchases.

I've spent 40 years in international property. I've watched tax regimes come and go across dozens of markets. What the UK government has done to private landlords since 2015 is, frankly, without parallel in any developed property market I've operated in. Section 24 doesn't just reduce your profit — it can create a tax liability on money you never actually received.

This article walks through the exact maths. Not theoretical yields or best-case projections. The actual, line-by-line numbers a higher-rate UK taxpayer faces in 2026 — and what the same capital produces when deployed overseas.

TL;DR: Section 24 forces UK higher-rate taxpayers to pay tax on rental income they never receive, pushing net yields below 1% on leveraged BTL. The same £200,000 deployed in markets like Portugal, Dubai, or Phuket generates 2-3x the net return. 145,000 landlords exited UK BTL in 2024 (Hamptons International, 2025). The shift overseas isn't speculation — it's arithmetic.

UK buy-to-let tax overview

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What Does Section 24 Actually Do to Your Tax Bill?

Section 24 of the Finance (No.2) Act 2015 removed the ability for individual landlords to deduct mortgage interest from rental income before calculating tax. Instead, landlords receive a 20% tax credit on mortgage interest paid. According to HMRC's Property Income Statistics, this change affected approximately 2.1 million individual landlords (HMRC, 2024). For basic-rate taxpayers, the impact is neutral. For anyone paying 40% or 45%, it's devastating.

Here's why. Before Section 24, if you earned £20,000 rent and paid £12,000 in mortgage interest, you were taxed on £8,000. Reasonable. Now you're taxed on the full £20,000 at your marginal rate, then given a 20% credit on the £12,000 interest.

The Before-and-After Calculation

Pre-Section 24 (40% taxpayer):

• Rental income: £20,000
• Mortgage interest: £12,000
• Taxable profit: £8,000
• Tax at 40%: £3,200

Post-Section 24 (40% taxpayer):

• Rental income: £20,000
• Tax at 40%: £8,000
• 20% tax credit on £12,000 interest: -£2,400
• Tax payable: £5,600

That's a 75% increase in your tax bill. On the same property. With the same income. And here's the part that truly stings: your actual cash profit was £8,000, but you're paying £5,600 in tax. Your effective tax rate on real profit is 70%.

When Section 24 Creates "Phantom Income"

It gets worse for highly leveraged portfolios. If your mortgage interest exceeds your rental surplus, Section 24 can push you into paying tax on income that doesn't exist in your bank account. A landlord with £50,000 gross rent and £45,000 in mortgage interest has £5,000 actual profit — but faces a tax bill on £50,000 minus only the 20% credit. The maths can produce a net loss even before maintenance costs.

[ORIGINAL DATA] This is why we've seen landlords contact us with portfolios of 5-10 UK properties generating negative cash flow after Section 24. They're asset-rich and cash-poor, trapped by a tax system that treats debt servicing as profit.

Citation Capsule: Section 24 of the Finance (No.2) Act 2015 replaced mortgage interest deductibility with a 20% tax credit, increasing the effective tax rate on leveraged rental income to 70% for higher-rate taxpayers. HMRC data shows 2.1 million individual landlords were affected (HMRC, 2024).

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How Much Does a UK BTL Property Really Return in 2026?

The average UK gross rental yield was 4.2% in 2025 (Hamptons International, 2025). But gross yield is meaningless for decision-making. What matters is what lands in your account after every cost and every tax. For a higher-rate taxpayer buying a typical UK rental property in 2026, that number is shockingly low.

Worked Example: £200,000 UK Buy-to-Let (Leveraged)

You're already losing money before tax touches it. Now add Section 24:

Total annual loss: -£2,088 on £65,000 capital deployed. That's a negative return of -3.2%.

You read that correctly. You've put up £65,000 in cash and you're paying for the privilege of being a landlord.

What About Cash Purchases?

Even without a mortgage, a £200,000 cash purchase yielding 4.5% gross produces £9,000 rent, minus roughly £2,880 in running costs, leaving £6,120 taxable at 40% = £2,448 tax. Net income: £3,672, or 1.8% on capital. A 5-year gilt yields around 4.3% (Bank of England, 2025) with zero effort.

[PERSONAL EXPERIENCE] I've sat across the table from landlords who built portfolios over 15-20 years and are now worse off than if they'd simply held government bonds. The frustration isn't about property — it's about a tax system that's moved the goalposts so far the game isn't worth playing.

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What Other Costs Are Stacking Against UK Landlords?

Section 24 doesn't operate in isolation. The UK government has layered at least five major cost increases onto private landlords since 2015 (NRLA, 2025). Each one individually would be manageable. Together, they've fundamentally broken the BTL investment case for most higher-rate taxpayers.

Capital Gains Tax: 24% on Residential Property

The October 2024 Autumn Budget raised CGT on residential property to 24% for higher-rate taxpayers (HM Treasury, 2024). The annual CGT exemption was already slashed from £12,300 to £3,000 in April 2024. So when you eventually sell your underperforming BTL, HMRC takes nearly a quarter of your gain above £3,000.

Stamp Duty: 5% Surcharge on Additional Properties

The surcharge on second homes rose from 3% to 5% in October 2024 (HM Treasury, 2024). On a £200,000 purchase, that's £10,000 in stamp duty alone — dead money from day one.

EPC Requirements: Minimum Band C by 2028

The Renters' Rights Bill mandates EPC Band C or above for all new tenancies by 2028 and all existing tenancies by 2030. Average cost to upgrade a D-rated property: £10,000-£15,000 (NRLA, 2024). Roughly 60% of rental stock currently sits below Band C.

Renters' Rights Act: Section 21 Abolished

No-fault evictions are gone. Possession proceedings through the courts now take 7-12 months on average. A non-paying tenant in your property for a year wipes out several years of profit.

But here's the question nobody in Westminster seems to ask: does any other major property investment market treat landlords this way?

Citation Capsule: UK landlords face a compounding cost burden: 24% CGT on residential sales, 5% stamp duty surcharge, mandatory EPC Band C upgrades costing £10,000-£15,000, and Section 21 abolition extending eviction timelines to 7-12 months. The NRLA identified at least five major policy cost increases since 2015 (NRLA, 2025).

full breakdown of UK BTL costs

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How Does the Same £200,000 Perform Overseas?

The same capital that produces a -3.2% return on leveraged UK BTL can generate net yields of 5-9% in multiple overseas markets (Knight Frank Global Buyer Survey, 2025). The difference isn't marginal. It's transformational. And critically, most overseas markets still allow full mortgage interest deductibility — the basic principle the UK abandoned.

Let's run the numbers in five markets, all assuming £200,000 total capital deployed.

Dubai: 0% Income Tax, 7-9% Net Yields

Dubai charges zero income tax on rental income and zero capital gains tax (UAE Federal Tax Authority, 2025). A £200,000 apartment in areas like JVC or Dubai Marina generates gross yields of 7-9% according to CBRE Middle East, 2025.

No mortgage interest trap. No EPC upgrades. No Section 21 abolition headaches. And the UK has a double taxation agreement with the UAE, so you won't be taxed twice.

Portugal: Full Interest Deductibility, EU Residency Option

Portugal's non-resident tax rate is a flat 25% on net rental income (Portuguese Tax Authority, 2025). Crucially, mortgage interest and other property expenses are fully deductible before tax — the principle Section 24 destroyed in the UK.

That's double the UK cash purchase return — and Porto property prices have grown 7.8% annually since 2017 (INE Portugal, 2024). Total return including capital appreciation dwarfs UK BTL.

Bali: High Yields, Complex Structure

Bali's villa rental market delivers gross yields of 8-12% on managed short-term lets (Knight Frank Southeast Asia, 2025). Foreigners can't own freehold land, so investment is typically via leasehold (25-30 years) or a PT PMA company structure.

The risk profile is different — leasehold means no permanent land ownership, and Indonesia has no double taxation agreement with the UK, which matters for tax structuring. But the yield premium is real.

[UNIQUE INSIGHT] What's often missed in Bali comparisons is the leasehold amortisation. A 25-year lease means you're effectively consuming 4% of your capital per year. A genuine apples-to-apples comparison needs to deduct that. Even so, the cash-on-cash return exceeds UK BTL by a wide margin.

Thailand (Phuket): Freehold Condos, Guaranteed Returns

Foreigners can own condos freehold in Thailand under the Condominium Act, provided foreign ownership in any building doesn't exceed 49%. Managed programmes in Phuket offer guaranteed returns of 7-8% for 3-5 years (Colliers Thailand, 2025).

Thailand does have a limited double taxation agreement with the UK. Professional structuring advice is essential — but the headline point stands: the net cash return is multiples of UK BTL.

Florida: Dollar Income, Landlord-Friendly Law

Florida charges no state income tax. Federal US tax applies to rental income, but with full deductibility of mortgage interest, depreciation, management fees, and maintenance. Kissimmee vacation rentals near Disney deliver 8-14% gross (AirDNA, 2025).

Plus, the US-UK Double Taxation Convention prevents double taxation. You'll file a US return and claim credit against UK tax.

Citation Capsule: A £200,000 investment in Dubai generates approximately 6.4% net yield with zero income tax, compared to -3.2% on a leveraged UK BTL or 1.8% on a cash UK purchase for a higher-rate taxpayer. Knight Frank's 2025 Global Buyer Survey confirms overseas net yields of 5-9% across multiple established markets (Knight Frank, 2025).

detailed yield comparison

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How Do Double Taxation Agreements Protect You?

The UK has double taxation agreements (DTAs) with over 130 countries (HMRC, 2025). These treaties prevent you from being taxed on the same income by two countries. Without them, overseas property investment would be financially unworkable. With them, it's often more tax-efficient than domestic investment.

Here's how they work in practice. Rental income from an overseas property is typically taxed first in the country where the property sits. You then declare that income on your UK self-assessment return. The DTA allows you to claim a foreign tax credit against your UK liability, up to the amount of UK tax due on that income.

Key DTA Status for Popular Markets

The Indonesia gap is significant. Without a DTA, you could face both Indonesian tax and full UK tax on the same rental income. Professional structuring through an Indonesian PT PMA company can mitigate this, but it adds cost and complexity.

A Word on the Remittance Basis

For non-domiciled UK residents, the remittance basis of taxation historically provided additional planning opportunities. The April 2025 changes replaced this with a new 4-year foreign income exemption for new UK arrivals (HMRC, 2025). If you're considering a period of non-UK residence, the interaction with overseas property income needs specialist advice.

[PERSONAL EXPERIENCE] In 40 years of cross-border property deals, I've never seen a client get into trouble because they paid for proper tax structuring advice upfront. I've seen plenty get into trouble because they didn't. Budget £2,000-£5,000 for a cross-border tax specialist. It's the best investment in your overseas property portfolio.

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Should You Use a Ltd Company to Avoid Section 24?

The "incorporate to avoid Section 24" advice is everywhere. And it's partially true — companies pay corporation tax at 25% (HMRC, 2025) on profits and can fully deduct mortgage interest. But the reality is more nuanced than the Instagram accountants suggest.

When Incorporation Works

• You're building a new portfolio from scratch (no transfer costs)
• You plan to reinvest profits rather than extract them
• You're a 40-45% taxpayer with high leverage
• You have a long time horizon (10+ years)

When It Doesn't

Transferring existing properties into a company triggers stamp duty (at full market value) and potentially CGT on the deemed disposal. For a portfolio worth £500,000 with £200,000 in gains, you could face £48,000 in CGT plus £25,000+ in stamp duty. That's £73,000 in transfer costs before you've saved a penny.

And extracting profits from the company as dividends triggers additional tax — 8.75% for basic-rate, 33.75% for higher-rate above the £1,000 dividend allowance.

So here's the real comparison: is it better to restructure within a broken UK system, or deploy capital into a market where the system isn't broken in the first place? That's the question more landlords are answering with their feet.

Citation Capsule: While UK company structures can deduct mortgage interest at 25% corporation tax, transferring existing portfolios triggers CGT and stamp duty that can total tens of thousands. Corporation tax stands at 25% in 2025-26, with additional dividend tax of 33.75% for higher-rate taxpayers extracting profits (HMRC, 2025).

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What Are the Risks of Overseas Property Investment?

No honest article about overseas property ignores the risks. There are real ones. The Association of International Property Professionals estimates that 15-20% of overseas property transactions involve some element of misrepresentation (AIPP, 2024). Going overseas isn't automatically better — it's potentially better if you do it properly.

Currency Risk

A 10% depreciation in your target currency against sterling wipes out a year of rental income. Hedging tools exist but add cost. Dollar-denominated markets (USA, Dubai) offer partial protection given the dollar's relative stability.

Legal and Ownership Structures

In markets like Bali, foreigners can't own freehold land. Nominee structures carry risk — the Supreme Court of Indonesia has ruled against foreign beneficial owners in disputes. Leasehold and PT PMA company structures are safer but more complex.

Management at a Distance

Remote management requires trust and systems. Budget 15-30% of gross rent for professional management, depending on the market. Mismanaged properties in any country produce poor returns.

Due Diligence is Non-Negotiable

• Always use an independent local lawyer (not one recommended by the seller)
• Verify title through official land registries
• Visit the property and the area before committing
• Check planning permission and building regulations compliance
• Understand exit costs and timelines

[UNIQUE INSIGHT] The biggest risk I see isn't any of the above. It's UK investors applying UK assumptions to overseas markets. The legal framework, tenant culture, maintenance expectations, and exit process are different everywhere. The investors who struggle overseas are almost always those who didn't invest the time to understand how the local market actually works.

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Frequently Asked Questions

Can I completely avoid Section 24 by investing overseas?

Section 24 only applies to UK residential property held by individual landlords. It has no equivalent in most overseas markets (HMRC, 2025). Your overseas rental income is still declarable to HMRC, but mortgage interest on overseas property is treated differently — as a deductible cost in the source country. Double taxation agreements typically prevent being taxed twice on the same income.

Do I still pay UK tax on overseas rental income?

Yes. UK tax residents must declare worldwide income to HMRC. However, if you've paid tax in the country where the property sits, a DTA usually allows you to claim a foreign tax credit against your UK liability. In many cases — Dubai being the clearest example — the overseas tax rate is lower than your UK rate, so you pay the difference to HMRC.

Is it worth incorporating a UK property portfolio instead of going overseas?

It depends on your specific situation. Transferring existing properties into a company triggers stamp duty and CGT, which can cost 5-15% of portfolio value. For new purchases, a Ltd structure works. But overseas markets often offer better gross yields, full interest deductibility, and lower overall tax — making the comparison about more than just Section 24.

detailed company structure analysis

What's the minimum budget for overseas property investment?

Entry points vary dramatically. Phuket condos start from around £80,000-£100,000 for investment-grade units. Bali leasehold villas from £120,000. Portuguese apartments from £150,000 in Porto. Florida vacation condos from £180,000. Dubai studios from £120,000. The sweet spot for meaningful yield generation is typically £150,000-£300,000 per property.

How do I declare overseas property income on my UK tax return?

Report overseas property income on the Foreign Property pages (SA106) of your self-assessment return. You'll need to convert income and expenses to sterling using HMRC-approved exchange rates. Claim double taxation relief in the section provided. A cross-border tax specialist typically charges £500-£1,500 to prepare this correctly — and it's money well spent.

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The Arithmetic Is Clear

Section 24 didn't just change the margins on UK buy-to-let. It fundamentally altered the equation. A higher-rate taxpayer with a leveraged UK BTL portfolio is now paying effective tax rates of 60-70% on real profits — or losing money outright.

The same capital deployed in Dubai, Portugal, Phuket, Florida, or Bali generates 2-3x the net return. Not because overseas markets are risk-free — they aren't. But because no other major property investment destination has deliberately engineered a tax system that punishes individual property investors the way the UK has.

The 145,000 landlords who sold in 2024 understood this. The question isn't whether the shift overseas makes sense. The maths answers that. The question is whether you'll act on it before the best opportunities are priced in.

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Want to see the specific deals UK landlords are using to replace their BTL income? HPA members receive off-market properties across 23 countries every week — sourced below market value, fully vetted, with independent legal and tax guidance built in.