Is Selling the Only Option? True Yield Versus the Tax of Getting Out

Since Section 24 finished phasing in, a steady stream of higher-rate landlords have reached the same conclusion: the numbers do not work like they used to, so maybe it is time to sell. It is a fair question, but selling is only one of several responses, and the way to test it is to compare the true net yield of holding against the one-off tax cost of getting out. Decide on a gut feeling and you can easily crystallise a large Capital Gains Tax bill to escape an income tax problem that had cheaper solutions. This spoke sits within the Section 24 hub and builds on the credit mechanics set out in the core Section 24 explainer.

Why Section 24 brings the sell question forward

Section 24 stopped landlords deducting mortgage interest from rental profit, replacing it with a 20 percent basic-rate tax reducer. For a geared higher-rate landlord that means tax is charged on a profit figure that ignores most of the borrowing cost, so the same economic return now carries more tax. The more leveraged the portfolio and the higher the interest rate, the more the post-tax yield is squeezed, and the more tempting an exit looks. The pressure intensifies from 6 April 2027, when the basic rate on property income, and with it the Section 24 reducer, rises, an exposure set out in the spoke on heavily geared portfolios.

Work out the true net yield before anything else

The first number is the genuine net yield of holding, after every cost including the real tax bill. Gross rent flatters the picture; what matters is what reaches you after mortgage interest, all running costs, void and maintenance allowances, and the income tax actually due once the Section 24 effect is applied. Expressed as a return on the equity tied up in the property, that is the figure a sale has to beat.

• Start with annual rent actually collected, not headline rent.
• Deduct mortgage interest, letting and management fees, insurance, repairs, and a realistic void and arrears allowance.
• Apply the income tax due on the Section 24 basis, not on the old profit-after-interest basis.
• Divide the resulting net cash return by the equity you hold in the property, not its full value, to get the true return on your own capital.

Many landlords are surprised in both directions. A heavily mortgaged property at a high interest rate can show a thin or negative return on equity once tax is properly applied, which strengthens the case to act. A low-geared property bought years ago can still yield well on its modest original equity even after Section 24, which weakens the case to sell.

The tax cost of getting out

Against the yield sits the cost of selling, and the largest part of that is usually Capital Gains Tax. A gain on a residential investment property is taxed at 18 percent to the extent it falls within your remaining basic-rate band and 24 percent above it, after deducting the annual exempt amount, which is £3,000 for 2026/27. The gain is the sale proceeds less the original cost, buying and selling costs, and qualifying capital improvements. For a property held for many years the gain, and therefore the tax, can be substantial.

Two timing points matter. The disposal must be reported and the CGT paid within 60 days of completion, separately from the Self Assessment return, and a large gain can itself push part of the gain from the 18 percent band into the 24 percent band by using up the basic-rate band. The Stamp Duty paid on purchase is a sunk cost that does not come back, but it does form part of the base cost reducing the gain. HMRC sets out the mechanics in its guidance on Capital Gains Tax on property.

A simple illustration

Consider a higher-rate landlord weighing a single geared property. The Section 24 effect has cut the net-of-tax rental return to a low percentage on the equity held. Selling would crystallise a gain built up over a long ownership, producing a CGT bill at 24 percent on most of it after the £3,000 exemption. The question is not simply "is the yield poor", it is "does giving up that yield justify paying the CGT now rather than later, and is there a cheaper fix". Where the gain is large and the income problem is fixable, holding and restructuring often beats selling; where the gain is small and the property is a persistent drain, selling can be the cleaner outcome.

The options between holding as-is and selling

Selling and doing nothing are not the only choices. Several middle routes address the Section 24 income problem without triggering a CGT disposal:

• Restructuring the borrowing, where moving the debt or the financing basis changes the interest cost, covered in the spoke on commercial versus buy-to-let mortgages.
• Income splitting with a lower-earning spouse, so more of the profit is taxed at the basic rate and less is exposed to Section 24.
• Incorporating the portfolio into a company, where finance costs remain fully deductible, though incorporation carries its own CGT and Stamp Duty consequences that have to be modelled first.
• Reducing gearing by paying down debt, which directly shrinks the finance cost that Section 24 penalises.

Each of these keeps the asset, and the latent gain, in place rather than paying tax to exit. They are the reason selling should be the conclusion of the analysis, not its starting point.

When selling genuinely makes sense

Sometimes the exit is right. A property that yields poorly on its equity even after restructuring, one with a small gain so the CGT cost is modest, one that no longer fits the portfolio strategy, or a landlord who simply wants to reduce exposure ahead of the April 2027 changes, can all point to a sale. The test is that the decision survives the numbers: the true net yield is genuinely poor, the cheaper fixes have been considered and rejected, and the CGT cost is understood and planned for rather than discovered at completion.

Common questions about selling versus holding

How much tax will I pay if I sell my rental property?

On a residential investment property the gain is taxed at 18 percent within your remaining basic-rate band and 24 percent above it, after the £3,000 annual exempt amount for 2026/27. The gain is broadly the proceeds less the original cost, buying and selling costs, and qualifying improvements, and the tax must be reported and paid within 60 days of completion.

Is it better to sell or incorporate to escape Section 24?

Incorporating keeps full relief for finance costs inside a company, but it is itself a disposal for CGT and can trigger Stamp Duty, so it is not automatically cheaper than holding personally. Which is better depends on the size of the latent gain, the gearing, and the long-term plan, and it should be modelled before either route is chosen.

Does selling one property push me into a higher CGT rate?

It can. The 18 percent rate only applies to the part of the gain that fits in your remaining basic-rate band; once that band is used up, the rest of the gain is taxed at 24 percent. A large gain in a single year therefore often falls mostly into the 24 percent band.

Should I wait until after April 2027 to decide?

The April 2027 rise in the property-income basic rate increases the Section 24 cost of holding for geared higher-rate landlords, so for some it brings the decision forward rather than delaying it. The right timing depends on your own yield and gain figures, which is exactly what the analysis above is for.

Whether to sell a buy-to-let is one of the bigger financial decisions a landlord makes, and the worst way to make it is on the income tax frustration alone. A landlord accountant can work out the true net yield after Section 24, model the Capital Gains Tax cost of selling against the cheaper alternatives, and make sure that if you do sell, the 60-day reporting and the gain are handled correctly.