Buy-to-Let Tax Guide for UK Landlords

Simple breakdown of taxes on rental income and property sales in the UK.

Tax on Rental Income

Rental income is subject to income tax at your marginal rate (20%, 40%, or 45%). You declare it on your Self Assessment tax return. The good news is you can deduct allowable expenses before calculating your tax bill. These include letting agent fees, maintenance and repairs, buildings insurance, and utility bills you pay (if not paid by tenants).

Mortgage Interest Relief Changes

A major change in recent years affects mortgage interest. You can no longer deduct mortgage interest as an expense from rental income. Instead, you get a 20% tax credit on your mortgage interest payments. This change hit higher-rate taxpayers particularly hard, as they effectively lost the ability to offset mortgage interest at 40% or 45%.

Allowable Expenses

You can deduct many costs from your rental income. These include letting agent fees, legal fees, accountancy fees, buildings and contents insurance, maintenance and repairs (but not improvements), utility bills, council tax, ground rent, and service charges. Keep all receipts – HMRC may ask for evidence. Note that improvements (like adding an extension) aren't deductible but may reduce capital gains tax when you sell.

Capital Gains Tax on Property Sales

When you sell a buy-to-let property, you'll likely face capital gains tax on any profit. The current rate is 24% for higher-rate taxpayers (18% for basic rate). You get an annual CGT allowance (£3,000 for 2025/26), and you can deduct costs like estate agent and solicitor fees from your gain. You must report and pay any CGT within 60 days of completion.

Stamp Duty Land Tax

When buying a rental property, you pay an extra 3% stamp duty on top of the normal rates. This applies to the entire purchase price. For example, a £300,000 buy-to-let attracts stamp duty of around £14,000 (including the surcharge), compared to £2,500 if it were your main home. This significantly affects the returns on buy-to-let investments.

Limited Company vs Personal Ownership

Many landlords now buy properties through limited companies to get better tax treatment. Companies can still deduct full mortgage interest as an expense, and they pay corporation tax (19%) rather than income tax (up to 45%). However, getting money out of the company creates additional tax charges. This structure works better for landlords planning to reinvest profits rather than taking income immediately.

Record Keeping Requirements

You must keep detailed records of all rental income and expenses for at least five years after the Self Assessment deadline. This includes tenancy agreements, bank statements, receipts for repairs, insurance documents, and letting agent statements. Good record keeping makes your tax return much easier and protects you if HMRC investigates.