Tax

Buy-to-Let Tax Guide UK — Complete Landlord Tax Breakdown

Everything landlords need to know about tax on buy-to-let property — Income Tax, mortgage interest relief, allowable expenses, Capital Gains Tax on sale, and tax-efficient structures.

By PocketWise · · 6 min read

Tax information is based on HMRC rules for the 2026/27 tax year. Tax rules can change — always verify current rates at GOV.UK. This is not tax advice. Consider consulting a qualified tax adviser for your personal situation.

Owning a buy-to-let property involves multiple taxes — rental income tax, mortgage interest restrictions, Capital Gains Tax on sale, and Stamp Duty on purchase. Here is how each one works.

Taxes on Buy-to-Let Property — Overview

Tax When it applies Rate
Income Tax on rent While you own and let the property 20%/40%/45% on net rental profit
Mortgage interest tax credit Against your tax bill 20% credit (not a deduction)
Stamp Duty (surcharge) When you buy Standard rates + 5% surcharge
Capital Gains Tax When you sell 18% (basic rate) / 24% (higher rate)
National Insurance On rental income Not charged — rental income is not earned income
Corporation Tax If held in a limited company 25%

Income Tax on Rental Income

How to Calculate Your Tax Bill

Step Calculation
1. Total rental income Annual rent received
2. Minus allowable expenses Letting agent fees, repairs, insurance, etc.
3. = Taxable rental profit Added to your other income
4. Tax at your marginal rate 20%, 40%, or 45%
5. Minus 20% mortgage interest credit 20% × total mortgage interest paid
6. = Tax due on rental income

Worked Example — Higher Rate Taxpayer

Item Amount
Annual rent received £12,000
Allowable expenses (excluding mortgage interest) -£2,500
Taxable rental profit £9,500
Tax at 40% (higher rate) £3,800
Mortgage interest paid per year £6,000
20% tax credit on mortgage interest -£1,200
Net tax on rental income £2,600

Under the old rules (pre-2020), the £6,000 mortgage interest would have been deducted from rental income, making the taxable profit £3,500, and tax at 40% just £1,400. The new rules cost this landlord an extra £1,200 per year.

Allowable Expenses

Expense Deductible? Notes
Letting agent fees Yes Management fees, tenant finding fees
Repairs and maintenance Yes Fixing boiler, repainting, replacing broken window
Insurance (landlord) Yes Buildings, contents, rent guarantee
Ground rent and service charges Yes If leasehold property
Council tax (if you pay it) Yes Only for void periods where landlord pays
Water rates (if you pay) Yes Only if included in rent
Accountancy fees Yes Preparing rental accounts and tax return
Legal fees (tenancy) Yes Drawing up tenancy agreements, eviction costs
Advertising for tenants Yes Rightmove, OpenRent listings
Travel to property Yes Reasonable travel to inspect, manage, or carry out repairs
Stationery, phone calls Yes Related to the letting business
Energy Performance Certificate Yes Legally required
Gas safety certificate Yes Annual legal requirement
Mortgage interest No 20% tax credit instead — not a deductible expense
Improvements No Adding an extension, new kitchen upgrade (capital expense — may reduce CGT later)
Your own time/labour No You cannot charge for your own work
Furniture for unfurnished let No Unless replacement (see below)

Replacement of Domestic Items Relief

Rule Detail
What qualifies Like-for-like replacement of furnishings (sofas, carpets, curtains, appliances)
What doesn’t qualify Initial furnishing of a property, or upgrading to a more expensive item (only the like-for-like cost is deductible)
How to claim Deduct as an expense on your tax return

Mortgage Interest Tax Credit (Section 24)

Detail Information
Old rules (before April 2017) Mortgage interest fully deductible as an expense
Phased in 2017–2020
Current rules (since April 2020) No deduction — instead a 20% tax credit
Impact on basic rate taxpayers None — 20% deduction replaced by 20% credit = same result
Impact on higher rate taxpayers Significant — effectively only 20% relief instead of 40%
Impact on additional rate taxpayers Severe — only 20% relief instead of 45%

Tax Impact by Rate — Example (£6,000 Mortgage Interest)

Tax band Old rules (deduction) New rules (credit) Extra tax per year
Basic rate (20%) £1,200 relief £1,200 relief £0
Higher rate (40%) £2,400 relief £1,200 relief £1,200
Additional rate (45%) £2,700 relief £1,200 relief £1,500

The Pushed-into-Higher-Rate Problem

Section 24 can push you into a higher tax band because the full rental income (without mortgage interest deduction) is added to your other income:

Scenario Without rental With rental (old rules) With rental (new rules)
Employment income £45,000 £45,000 £45,000
Rental income — £12,000 £12,000
Minus mortgage interest — -£8,000 £0 (credit only)
Total taxable income £45,000 £49,000 £57,000
Tax band Basic rate Basic rate Higher rate

Stamp Duty — Buy-to-Let Surcharge

When buying a buy-to-let (or additional property), you pay the standard Stamp Duty rates plus a 5% surcharge on the entire purchase price:

Purchase price band Standard rate Buy-to-let rate (with 5% surcharge)
£0–£125,000 0% 5%
£125,001–£250,000 2% 7%
£250,001–£925,000 5% 10%
£925,001–£1,500,000 10% 15%
Over £1,500,000 12% 17%

Example: Buy-to-Let at £250,000

Band Taxable amount Rate Tax
£0–£125,000 £125,000 5% £6,250
£125,001–£250,000 £125,000 7% £8,750
Total Stamp Duty £15,000

Without the surcharge, the same property would cost £2,500 in Stamp Duty.

Capital Gains Tax When You Sell

Detail Information
CGT rate (basic rate taxpayer) 18%
CGT rate (higher rate taxpayer) 24%
Annual exempt amount (2025/26) £3,000
Reporting deadline Within 60 days of completion
Payment deadline Within 60 days of completion

Calculating Your CGT

Item Calculation
Sale price e.g. £300,000
Minus purchase price -£200,000
Minus purchase costs (stamp duty, solicitor) -£16,500
Minus selling costs (agent fees, solicitor) -£6,000
Minus qualifying improvements -£10,000
= Gain £67,500
Minus annual exempt amount -£3,000
= Taxable gain £64,500
CGT at 24% (higher rate) £15,480

What Counts as an Improvement (Reduces CGT)?

Improvement (deductible) Repair (not deductible for CGT — but deductible from rental income)
Extension Fixing a broken boiler
Loft conversion Repainting walls
New kitchen (where none existed or significant upgrade) Replacing broken window
New bathroom (significant upgrade) Patching a roof
Double glazing (replacing single) Like-for-like boiler replacement

Limited Company vs Personal Ownership

Feature Personal ownership Limited company
Income Tax rate 20%/40%/45% Corporation Tax 25%
Mortgage interest 20% tax credit only Fully deductible expense
Extracting profits Directly yours Dividend tax or salary (additional tax)
CGT on sale 18%/24% Corporation Tax 25%, then tax on extraction
Mortgage rates Lower Typically 0.5%–1.5% higher
Set-up costs Minimal Company formation, accountancy (£1,000–£3,000/year)
Privacy Property linked to you Property linked to company
Stamp Duty on transfer Must pay SDLT on market value transfer —
Best for Basic rate taxpayers, small mortgages Higher rate taxpayers, large mortgages, portfolio landlords

Warning: Transferring an existing property into a company triggers Stamp Duty (with surcharge) and Capital Gains Tax. It is usually only worth doing for new purchases.

Record Keeping

Record How long to keep
Rental income records 5 years after 31 January following the tax year
Expense receipts 5 years after 31 January following the tax year
Purchase records (for CGT) Until 5 years after selling the property
Mortgage statements Until 5 years after selling
Improvement receipts Until 5 years after selling — these reduce your CGT

Sources

  1. HMRC — Renting out your property
  2. HMRC — Income Tax
  3. HMRC — National Insurance