Buy to let tax catches a lot of new landlords out. There are four main taxes to think about: stamp duty when you buy, income tax or corporation tax on the rent while you own it, and capital gains tax when you sell. On top of that, the way you own the property, in your own name or through a limited company, changes almost every one of them.
I'm not an accountant and this isn't tax advice, but tax shapes the mortgage you need, so it's something I talk through with every landlord. This guide explains the basics in plain English so you can have a better conversation with your accountant, and so the numbers don't come as a shock after you've bought.
Stamp duty, including the 5% surcharge on additional properties in England and Northern Ireland.
Income tax on rental profit if you own personally, or corporation tax if a limited company owns it.
Capital gains tax on the increase in value, reported and paid within 60 days of completion.
If you own a buy to let in your personal name, the rental profit is added to your other income and taxed at your normal rate. The catch since Section 24 is that mortgage interest isn't deducted from the rent any more. You pay tax on the profit before interest, then get a credit worth 20% of the interest back. For basic rate taxpayers it works out about the same. For higher rate taxpayers it can wipe out most of the profit.
Letting agent fees, landlord insurance, repairs, safety certificates, accountancy, ground rent and service charges, and replacing like for like furnishings can all be deducted from the rent.
From April 2027 the government plans separate property income tax rates of 22%, 42% and 47%, two points above normal rates, with the mortgage interest credit rising to 22%.
Landlords and sole traders with combined income over £50,000 have had to keep digital records and send quarterly updates since April 2026. The threshold drops to £30,000 in April 2027.
Same property, same rent, but the higher rate taxpayer keeps a fraction of the profit. That's why so many landlords now look at limited companies. Illustrative figures using 2026/27 rates.
Your buy to let tax bill is worked out on profit, not on the rent you receive. That makes it worth knowing exactly what you can deduct. The general rule is simple: day to day running costs are allowable expenses, improvements are not. Get the split right and you'll pay the tax you owe and no more.
Letting agent and management fees, landlord insurance, repairs and maintenance, gas and electrical safety certificates, ground rent, service charges, accountancy fees and legal costs for renewing a tenancy. If you pay the utility bills or council tax while the property is empty, those count too.
When you replace a sofa, fridge, carpet or bed in a furnished let, you can claim the cost of a like for like replacement. The old wear and tear allowance went in 2016, so you can't claim a flat 10% any more. The first time you furnish a property doesn't qualify.
If you own personally, mortgage interest payments and other finance costs aren't deducted from your rental income. Instead you get a tax credit worth 20% of your finance costs. That's the Section 24 restriction, and it's why higher rate taxpayers often pay more tax than they expect.
An extension, a loft conversion or upgrading a basic kitchen to a much better one counts as capital expenditure. You can't set it against rent, but you can usually deduct it from the gain when you sell. Keep every invoice, because you may need them years later.
If your total property income is £1,000 or less in a tax year, it's tax free and you don't need to declare it. Above that you can either claim actual expenses or deduct the £1,000 property allowance, but not both. Most landlords with a mortgage are better off claiming real costs.
HMRC can ask to see your records for at least five years after the filing deadline. A separate bank account for the property makes it far easier to show which costs belong to the business and which are personal.
Rental profit is added to your other earnings, so the rate of tax you pay depends on your total income for the tax year. That's the bit people miss. Your rent doesn't have its own tax band, it sits on top of your salary, pension or business profits and can push you into a higher tax bracket.
The first £12,570 of your total income is usually tax free. If your job already uses up your personal allowance, every pound of rental profit is taxable income.
In England, Wales and Northern Ireland profit is taxed at 20% in the basic rate band, 40% at the higher rate and 45% at the additional rate. Scotland has its own bands. Your marginal income tax rate is what matters for each extra pound of rent.
The government has announced separate rates for property income from 6 April 2027: 22%, 42% and 47%. The finance cost credit is due to rise to 22% to match. It's worth checking how this changes your numbers before you buy.
Married couples and civil partners who own jointly are normally taxed 50:50. If you own the property in different shares, you can ask HMRC to tax you on your actual shares using a Form 17 declaration, which can help if one of you pays a lower rate.
In this example the tax takes 70% of the real profit. Figures are illustrative and based on 2026/27 rates. They are not tax advice, so speak to a tax adviser about your own position.
In England and Northern Ireland, buying a rental property usually means paying a 5% surcharge on top of the standard stamp duty rates, because it's an additional property. Limited companies pay the surcharge on every residential purchase, even their first.
So a £250,000 buy to let costs £15,000 in stamp duty, against £2,500 for someone buying the same home to live in.
Scotland and Wales have their own taxes and their own higher rates for additional homes, so check those separately. If you're replacing your main home and sell the old one within three years, you can usually reclaim the surcharge.
Always check the current stamp duty rates on GOV.UKor use our stamp duty calculator.
This is the biggest tax decision most new landlords make, and it's much harder to change later. Here's how the two routes compare side by side.
Dividend tax rates rose by two percentage points from April 2026, which narrows the gap for some landlords. Read our limited company buy to let mortgages guidefor the lending side.
When you sell a rental property you own personally, you may pay capital gains tax on the increase in value. The gain is the sale price minus what you paid and allowable costs like stamp duty, legal fees and improvements.
Gains on residential property are taxed at 18% within the basic rate band and 24% above it. Everyone has a small annual exempt amount, currently £3,000.
You must report the sale and pay any capital gains tax to HMRC within 60 days of completion. Missing it means penalties and interest, so plan ahead.
A company pays corporation tax on the gain instead. Moving properties you already own into a company usually counts as a sale, which can trigger both capital gains tax and stamp duty.
Once your property income goes over £1,000 you need to declare it. For most landlords that means a self assessment tax return every year, and for a growing number it now means quarterly updates as well. Missing a deadline brings automatic penalties, even if no tax is due.
If you start letting this tax year, register for self assessment by 5 October after the tax year ends on 5 April. HMRC then sends you a Unique Taxpayer Reference.
The online tax return and any tax due for the previous year are due by 31 January. If your bill is over £1,000 you'll usually make payments on account towards next year's tax bill too.
Since 6 April 2026, landlords and sole traders with qualifying income over £50,000 must keep digital records and send quarterly returns using MTD compatible software. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
If you've let a property in the past and not told HMRC, it's far better to come forward than wait to be found. HMRC's Let Property Campaign lets you declare unpaid tax on better terms than an investigation.
Lenders ask for your SA302 tax calculations and tax year overviews when you remortgage or buy more property, so filing on time matters for your next mortgage application too.
Buy to let tax doesn't stop at income and selling. A rental property is part of your estate, the rules for holiday lets have changed, and letting out a home you used to live in comes with its own reliefs. These are the areas where I most often suggest people seek professional tax advice before they act.
Rental property counts towards your estate for inheritance tax purposes. Anything above the £325,000 nil rate band is normally taxed at 40%, and the extra residence allowance only applies to your main home, not a buy to let. A mortgage reduces the value of the estate, which is one reason some landlords keep borrowing in place.
The special tax regime for furnished holiday lettings ended in April 2025. Holiday lets are now taxed much like any other rental, so finance costs get the same 20% credit and the old tax advantages on selling have gone. If you bought on the old rules, it's worth a fresh look at the numbers.
If the property used to be your main home, private residence relief covers the years you lived there plus the final nine months of ownership. Lettings relief now only helps if you shared the home with your tenant, so most people moving out and letting won't get it.
Before you transfer a property into a company, change the ownership split, sell, or start letting a second home. A tax specialist can show you the tax implications of each option. We advise on the mortgage side and are happy to work alongside your accountant.
Owning a rental property means taking on legal duties as well as a mortgage. The rules below are for England. Scotland, Wales and Northern Ireland have their own systems.
The main changes started on 1 May 2026. Section 21 no fault evictions have ended, tenancies are periodic, and rent can only go up once a year. Read the government guide.
Any deposit you take from a tenant must go into a government approved protection scheme, with the prescribed information given to the tenant within 30 days.
A gas safety check every year, an electrical inspection at least every five years, working smoke and carbon monoxide alarms, and an EPC rated E or above.
In England you must check every adult tenant has the right to rent in the UK before the tenancy starts, and keep a record of the checks.
Large HMOs need a mandatory licence, and many councils run additional or selective licensing for smaller properties. Always check with the council for the property's address. More in our HMO mortgages guide.
Letting a property on a normal mortgage without consent to let can breach your terms. With leasehold flats, check the lease allows subletting before you buy.
Yes. If you own the property personally, your rental profit is added to your other income and taxed at your normal income tax rate. A limited company pays corporation tax on its profit instead.
Not directly if you own personally. Since Section 24, you get a tax credit worth 20% of your mortgage interest instead. Limited companies can still deduct mortgage interest as a business cost.
It can be for higher rate taxpayers who plan to keep profits in the company or build a portfolio. It's often not worth it for basic rate taxpayers with one property. An accountant can run the numbers for your situation.
If you sell your old main home within three years of buying the new one, you can usually claim the surcharge back. The rules are detailed, so check with your solicitor at the time.
Yes. You'll usually need to register for Self Assessment and declare the rental income each year. Larger landlords also need to follow the Making Tax Digital rules.
Common allowable expenses include letting agent fees, landlord insurance, repairs and maintenance, safety certificates, accountancy fees, ground rent, service charges and replacing furnishings. Improvements generally aren't allowable against income.
Sorted the tax side and ready to look at the mortgage? We'll find the right lender for how you're buying.
Call 03300 432 428Jamie founded Alexander Southwell Mortgage Services in 2019 and has 15 years' experience in mortgages, including buy to let, limited company and portfolio lending. He advises landlords across the UK from our office in Romsey, Hampshire. Alexander Southwell Mortgage Services is authorised and regulated by the Financial Conduct Authority, FCA number 1011890. Page last reviewed October 2026.
This guide is general information, not tax or legal advice. Tax treatment depends on your individual circumstances and may change. Speak to a qualified accountant or solicitor before acting. Your property may be repossessed if you do not keep up repayments on your mortgage. Most buy to let mortgages are not regulated by the Financial Conduct Authority.
