For most of the last decade, refinancing a buy-to-let was a near-automatic decision: rates trended down, equity built up, and pulling cash out to fund the next purchase was both cheap and fully relievable. Section 24 ended that automatic logic. Interest is no longer a deduction for individual landlords, the relief is capped at the basic rate, and the April 2027 property income rates change the after-tax sums again. The question is no longer "can I get a better rate" but "does this remortgage still pay once the tax is accounted for".
This guide works through when refinancing genuinely makes sense for a UK landlord, how equity release interacts with interest relief (the area where the most expensive mistakes are made), and the sequencing decisions, refinance first or incorporate first, that change the answer entirely.
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How buy-to-let refinancing is taxed under Section 24
Start with the rule that drives everything else. For individual landlords, mortgage interest and other allowable finance costs are no longer deducted from rental profit. Instead they generate a basic-rate tax reducer: a credit set against your overall income tax bill. For 2026/27 that credit is given at 20%. From 6 April 2027 it rises to 22%, in step with the new property basic rate enacted by Finance Act 2026 (Royal Assent 18 March 2026), which applies to property income in England, Wales and Northern Ireland; only Scotland is carved out.
That single change reshapes the refinancing decision in two ways. First, a higher interest bill is more painful after tax than it used to be, because a higher-rate landlord recovers only basic-rate relief on it. Second, the credit is capped at the lower of three figures (20% of finance costs, 20% of rental profit before finance costs, and 20% of income above the personal allowance), so landlords with thin profits or large interest bills may not even get the full basic-rate relief. Refinancing into a larger loan can quietly push you into that capped territory.
None of this applies to limited companies. A company deducts interest and finance costs in full before corporation tax, which is exactly why the refinancing maths often looks different inside a company structure. We come back to that below, because for many landlords the structure question should be answered before the refinancing one.
The April 2027 rates: does the wedge get worse?
A common worry is that the April 2027 property income rates widen the gap between what a landlord pays and what they can reclaim on interest. They do not. From 2027/28, property income (England, Wales and NI) is taxed at 22% basic, 42% higher and 47% additional, and Finance Act 2026 lifts the Section 24 reducer to the new 22% basic rate at the same time. The reducer is not frozen at 20%.
The practical result: a basic-rate landlord sees the reducer (22%) match the rate on property income (22%), so no new wedge opens. A higher-rate landlord's relief improves from 20% to 22%, but still sits well below their 42% rate, leaving the same finance-cost gap as today rather than a wider one. So while 2027/28 changes the absolute figures in your refinancing model, it does not change the direction of the decision. Our 2027 property tax rates and Section 24 guide sets out the mechanics in full.
Equity release and interest relief: the rule landlords get wrong
This is where refinancing advice most often goes astray, including in older articles that are still circulating. The myth is that if you remortgage and spend the released cash on something personal, you automatically lose the interest relief on that slice. The real rule is more generous in one direction and stricter in another, and getting it right is worth real money.
HMRC's position, set out in the Business Income Manual, is that a property letting business can withdraw the capital it originally introduced. You are treated as having put the property into the business at its market value when letting began. You can borrow up to that value and claim relief on the interest, even if you draw the cash out for your own use, because in substance you are withdrawing your own capital from the business. What you spend it on does not, by itself, break the relief up to that ceiling.
The limit bites when borrowing goes beyond the value at which the property entered the business. Interest on that excess is not part of the letting business and is not relievable. So the deciding factors are the amount of the borrowing relative to the property's value on entering the business, and whether the borrowing is genuinely part of that business, not simply whether you remortgaged or what you bought with the money.
Worked example. A landlord let a flat that was worth £220,000 when it entered the letting business. The outstanding mortgage is £130,000. They remortgage to £200,000 and withdraw £70,000 to use personally. Because the total borrowing (£200,000) is still below the £220,000 value at which the property entered the business, the interest on the full £200,000 remains within the Section 24 regime and qualifies for the basic-rate credit. Had they remortgaged to £260,000, the interest on the £40,000 above the £220,000 ceiling would not be relievable at all.
Two cautions. The "value on entering the business" ceiling is the original letting value, not today's value, so equity that has built up through price growth does not raise the ceiling. And the rules differ for a property you previously lived in before letting, where the relevant value is the one at the start of the rental business. If you are at all uncertain which value applies, get it checked before you borrow against the higher number.
A Section 24 worked example: rate cut versus equity release
Numbers make the after-tax point clearer than any rule of thumb. Take a higher-rate landlord with a single property let at £18,000 a year and an interest-only mortgage of £200,000.
| Scenario | Interest rate | Annual interest | Section 24 credit (20%) | After-credit interest cost |
|---|---|---|---|---|
| Current deal | 5.5% | £11,000 | £2,200 | £8,800 |
| Refinance, lower rate | 4.5% | £9,000 | £1,800 | £7,200 |
| Refinance + £40k equity release | 4.5% | £10,800 | £2,160 | £8,640 |
Read the table carefully. A one-point rate cut lowers the after-credit cost by £1,600 a year, real money against which you weigh the switching costs. But notice the credit also falls (£2,200 to £1,800), because the credit tracks the interest. You do not save the full headline £2,000 of interest after tax; you save the after-credit difference. The third row shows the trap: releasing £40,000 of equity at the new rate adds back most of the interest you just saved. Unless that £40,000 is funding something that earns more than it costs after tax, the equity release quietly cancels the benefit of the remortgage.
From 2027/28 the credit in this example would be computed at 22% rather than 20%, which slightly increases the relief on each row but does not change the ranking of the three options. The discipline is the same: model the after-credit cost, not the headline rate.
When refinancing genuinely makes sense
Set against that maths, a remortgage clears the bar in a handful of well-defined situations.
A meaningful rate reduction on a sizeable loan
The clearest case is rolling off a fixed deal onto a materially lower rate, or escaping a lender's expensive standard variable rate. The saving scales with the loan, so the larger the balance and the longer the remaining fixed period, the more easily the after-tax saving clears the arranging and switching costs. On a small loan, even a decent rate cut often does not.
Equity release to fund a further property purchase
Releasing equity to buy another rental can be efficient, because the new borrowing is genuinely part of your letting business and the interest qualifies for relief, subject to the value ceiling discussed above. This is how many portfolios grow without fresh outside capital. The discipline is to confirm the rental income across the enlarged portfolio comfortably covers the higher total debt service, and to remember the additional-dwelling stamp duty surcharge on the new purchase, covered in the next section.
Switching mortgage type to match your stage
A remortgage is the natural moment to move between interest-only and repayment. Interest-only keeps outgoings low and maximises the Section 24 credit, which suits a landlord still building a portfolio. Repayment steadily reduces debt and risk, which suits a landlord nearing retirement who wants to own assets outright. Neither is "more tax-efficient" in the abstract; the right answer follows your cash flow and your timeline.
Escaping a restrictive or expiring product
Sometimes the trigger is not the rate at all but the terms: a deal ending, a lender exiting the market, or covenants that no longer fit. Refinancing to a product that lets you manage the portfolio the way you intend can be worth doing even where the headline rate is broadly flat.
Stamp duty, devolved taxes and the additional-dwelling surcharge
Refinancing an existing property does not itself trigger stamp duty, because you are not buying anything. But the most common reason to release equity, buying another rental, does. Across England and Northern Ireland the additional-dwelling surcharge on second and subsequent residential properties is now charged at the higher rates introduced from 31 October 2024. In Scotland, the equivalent is Land and Buildings Transaction Tax plus the Additional Dwelling Supplement (ADS); in Wales, it is Land Transaction Tax with its own higher residential rates. The point for refinancing is simply that the acquisition cost of the next property includes a surcharge you must build into the case for releasing the equity in the first place.
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Capital gains tax: refinancing is not a disposal
Remortgaging does not crystallise a capital gain. You can pull equity out of a property without paying capital gains tax, because no disposal has taken place; the gain is taxed only when you sell or transfer. That is genuinely useful (it lets you access value without a tax charge), but it is not a way to escape CGT. When you eventually sell, the gain is calculated on the full proceeds against the original cost, irrespective of how much you have borrowed against the property in the meantime.
Residential property gains are taxed at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, with a £3,000 annual exempt amount per person and 60-day reporting where tax is due. If part of your reason for refinancing is to avoid selling, weigh the ongoing after-tax cost of the extra borrowing against the one-off CGT you would pay on a disposal. Our capital gains tax on property guide sets out the rates, reliefs and reporting in detail.
Refinance, or incorporate? Comparing the two routes
For higher-rate landlords frustrated by Section 24, the real alternative to refinancing is often a change of structure. A limited company deducts interest in full before corporation tax, so the finance-cost restriction disappears. That does not make incorporation automatically better, because it brings its own costs and complications, but it is the comparison that actually matters when the goal is to reduce the tax cost of borrowing.
| Consideration | Refinance in personal name | Move to / borrow in a limited company |
|---|---|---|
| Interest relief | Basic-rate credit only (20%, rising to 22% from 2027/28) | Full deduction before corporation tax |
| Profit taxed at | Your income tax rates (up to 47% from 2027/28) | Corporation tax, then tax again on extraction |
| Cost to set up | Arranging and switching costs of the new mortgage | Potential CGT and SDLT on transferring existing properties in |
| Getting cash out | Equity release, subject to the value ceiling | Salary, dividends or director's loan repayment, each with its own tax |
| Admin and reporting | Self Assessment, now within MTD for Income Tax | Company accounts and CT600; outside MTD for ITSA |
| Best suited to | Existing personally held properties, smaller portfolios, short holds | New acquisitions, portfolio growth, long-term retention |
The table makes the sequencing point obvious. If incorporation is genuinely on the table, refinancing into a personal-name product you may redeem within a year or two can waste the switching costs, and equity you release personally still has to be dealt with on transfer. The order to test is: model the structure first, then decide the financing within it. Our guides on when to incorporate a property portfolio and limited company buy-to-let mortgage options work through both sides.
MTD for Income Tax: what refinancing landlords need ready
Making Tax Digital for Income Tax is now live and rolling out by income band: from 6 April 2026 for landlords with qualifying income above £50,000, from 6 April 2027 above £30,000, and from 6 April 2028 above £20,000. Joint owners test the threshold against their share of the gross income, not the property's total.
Refinancing does not change which band you fall into, but it does change the finance-cost figures you have to capture digitally and report through MTD-compatible software each quarter. If a remortgage materially alters your interest, that flows into your quarterly updates and your year-end finalisation. Landlords still on spreadsheets should treat a refinance as a prompt to get their record-keeping MTD-ready rather than reconstruct a year of interest at the deadline. See our guide to MTD software for landlords for where to start.
When not to refinance
Three situations rarely justify a remortgage. The first is when you expect to sell within a year or two: the switching costs seldom recover over a short hold, and any early repayment charge makes it worse. The second is releasing equity purely for personal spending without a productive use, because you take on relievable-only-at-basic-rate interest against an asset that earns you nothing extra; the after-tax cost is higher than it looks. The third is refinancing a property whose rental income is already marginal, because a larger loan thins the buffer against void periods, rate rises and repairs precisely when you can least absorb them.
How to test a refinance properly
Run the decision on an after-tax basis, in this order. Calculate the after-credit interest cost of staying put and of each refinancing option, as in the worked example above, rather than comparing headline rates. Total the real switching costs, including any early repayment charge, and check how many years of after-tax saving it takes to recover them against the length of the new fixed period. If equity release is involved, confirm the borrowing stays within the value-on-entering-the-business ceiling and that the cash funds something that earns more than it costs after tax. Finally, before signing anything, ask whether a change of structure would serve the same goal better, because the answer to that question can make the refinancing question moot.
Refinancing still has a clear place in a landlord's toolkit. It just no longer makes sense on autopilot. The landlords who come out ahead are the ones who model the after-tax position, respect the equity-release rules, and settle the structure question first.