Buy to Let Tax Explained UK 2025

Income tax on rental profits — how it works

Rental income is added to your total income and taxed at your marginal rate — the rate that applies to the highest portion of your earnings. If your employment income already takes you into the higher-rate band (above £50,270 in 2024/25), your rental profit is taxed at 40%. If you are a basic-rate taxpayer, your rental profit is taxed at 20%.

Crucially, it is the profit that is taxed — not the gross rental income. You deduct allowable expenses before calculating the taxable figure. What those allowable expenses include and exclude is the core of understanding BTL taxation.

What expenses can landlords deduct?

The £1,000 property income allowance

HMRC provides a £1,000 property income allowance per tax year. If your total gross property income is below £1,000, you do not need to declare it or pay any tax. If it is above £1,000, you can either deduct the £1,000 allowance instead of actual expenses (simpler but rarely better unless costs are genuinely minimal) or deduct actual allowable expenses as normal. For any landlord with a mortgage, actual expenses will far exceed £1,000 — so the allowance is only useful for landlords with very low-cost, fully owned properties.

Section 24 — the mortgage interest restriction explained

Section 24 in numbers — the same property, three tax positions

Property: £200,000, 75% LTV mortgage at £150,000 and 3.67% interest = £5,500/year. Rent £1,000/month, other expenses £3,500/year. The basic-rate landlord's tax bill is unchanged. The higher-rate landlord's tax bill nearly quadruples — from £600 to £2,300 — on the same property, same rent, same mortgage.

Worked income tax examples — two landlords, same property

Capital gains tax when selling a buy-to-let property

When you sell a BTL property, the gain — the difference between the sale price and the original purchase price, adjusted for costs — is subject to Capital Gains Tax. Since the October 2024 Autumn Budget, residential property CGT rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. The annual CGT allowance is £3,000 (2024/25).

What reduces your CGT liability

• Purchase costs — solicitor fees, stamp duty, survey costs paid when you bought
• Capital improvements — genuine enhancements to the property (new extension, loft conversion, kitchen upgrade) that permanently increase its value. Like-for-like repairs are not capital improvements — they are revenue expenses deductible against rental income instead
• Selling costs — estate agent fees, solicitor fees on sale
• Annual CGT allowance — £3,000 per individual (2024/25)
• Losses from other assets — losses on other CGT assets in the same tax year can be offset

Worked CGT example

Key points on CGT timing and planning: CGT on residential property must be reported to HMRC and paid within 60 days of completion on the sale (not at the end of the tax year). This is a strict deadline — late payment attracts penalties and interest. If you own the property jointly with a spouse or civil partner, you can each use your individual CGT allowance (£3,000 each = £6,000 combined), and if one of you is a basic-rate taxpayer, a portion of the gain may be taxed at 18% rather than 24%. Transferring a share of the property to a lower-rate spouse before sale is a legitimate tax planning strategy — seek professional advice before doing so.

Stamp duty on buy-to-let purchases — the 5% surcharge

Every additional residential property purchase in England is subject to the standard Stamp Duty Land Tax (SDLT) rates plus a 5 percentage point surcharge on the full purchase price (raised from 3% on 31 October 2024). The surcharge applies from the first pound — there is no nil-rate band for BTL purchases.

England and Wales. Scotland uses LBTT with an 8% Additional Dwelling Supplement (effective 5 December 2024) — see our Glasgow and Edinburgh guides for details. Use our BTL stamp duty calculator for the exact figure on any price.

Personal name vs limited company — does incorporation help?

The primary tax advantage of holding BTL property in a limited company is that mortgage interest remains fully deductible as a business expense — Section 24 does not apply to companies. The company pays corporation tax on the remaining profit (19% on profits up to £50,000; 25% above £250,000), not income tax at 40–45%.

The trade-offs of limited company BTL

• Higher mortgage rates — limited company BTL mortgages typically cost 0.5–1% more than personal BTL mortgages, partially offsetting the tax advantage. On a £150,000 mortgage, 0.75% extra rate costs approximately £1,125/year in additional interest.
• Corporation tax on retained profits — profits retained in the company are taxed at corporation tax rates. To access the money personally, you extract it as salary or dividends, which attracts further personal tax. The cash in the company belongs to the company, not to you personally.
• Setup and ongoing costs — incorporating and maintaining a company costs £50–£200 to set up and £500–£1,500/year in additional accountancy fees. For a single property, these costs frequently outweigh the tax saving.
• No capital gains tax relief on incorporation — transferring an existing personally owned BTL property into a company is treated as a sale for CGT purposes. You pay CGT on the gain at the time of transfer. This makes incorporation of existing portfolios expensive; the company structure works best when building a new portfolio from scratch.
• Beneficial for higher-rate taxpayers with 3+ properties — the limited company structure makes financial sense primarily for higher-rate taxpayers with significant rental income and multiple properties. For a single property at marginal profitability, the additional complexity and cost rarely pays.

Reporting rental income to HMRC — self assessment

If you receive any rental income, you must register for self assessment with HMRC and file a tax return each year — even if your total income is below the tax threshold, and even if you make a loss. Register online at gov.uk as soon as you start receiving rent; HMRC imposes penalties for late registration.

• Tax year — runs 6 April to 5 April. Your rental income for 2024/25 must be reported on a tax return filed by 31 January 2026 (online) or 31 October 2025 (paper).
• Record keeping — keep all receipts, bank statements, invoices, and rent records for at least five years after the tax return filing deadline.
• Allowable loss carry-forward — if your rental expenses exceed your rental income in a year, the resulting loss can be carried forward to offset future rental profits. Losses cannot be offset against employment income.
• Making Tax Digital (MTD) — from April 2026, landlords with rental income above £50,000 must keep digital records and file quarterly updates to HMRC under the Making Tax Digital for Income Tax programme. The threshold drops to £30,000 from April 2027. This will change the record-keeping and reporting obligations for affected landlords.

Frequently asked questions

• How much tax do you pay on buy-to-let income?
  Rental profit is taxed at your marginal income tax rate — 20% for basic-rate, 40% for higher-rate, 45% for additional-rate taxpayers. The taxable profit is gross rent minus allowable expenses — but mortgage interest is handled separately under Section 24 (a 20% credit, not a deduction). A basic-rate landlord's net tax position is broadly unchanged from pre-Section 24; a higher-rate landlord pays significantly more tax on the same property.
• What is Section 24 and does it affect me?
  Section 24 prevents individual landlords from deducting mortgage interest as an expense. Instead they receive a 20% tax credit on the interest. Basic-rate taxpayers (20%) are broadly unaffected — the credit offsets the tax. Higher-rate taxpayers (40%) are significantly affected — they pay 40% tax on rental income but only get 20% back on the interest. The higher your marginal tax rate, the greater Section 24's impact.
• How much CGT do you pay when selling a buy-to-let property?
  CGT on residential property is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers (from October 2024). The annual allowance is £3,000. Purchase costs, capital improvements, and selling costs reduce the taxable gain. CGT must be paid within 60 days of completion — not at the end of the tax year. A gain of £100,000 after allowances costs £28,080 at 24% for a higher-rate taxpayer.
• Should I put my buy-to-let in a limited company?
  A limited company is most beneficial for higher-rate taxpayers with multiple properties because mortgage interest remains fully deductible against corporation tax. The trade-offs are higher BTL mortgage rates (0.5–1% above personal rates), additional accountancy costs, and the complexity of extracting profits personally. For a single property, the cost rarely justifies the tax saving. For a growing portfolio where a significant portion of income would otherwise be taxed at 40%, the company structure typically pays over time. Always take specialist landlord tax advice — this decision is hard to reverse.
• What expenses can a landlord deduct against rental income?
  Deductible expenses include letting agent fees, maintenance and repairs, landlord insurance, accountancy fees, council tax and utilities during voids, ground rent, and advertising costs. Capital improvements (new extension, full refurbishment) are not immediately deductible — they reduce CGT on eventual sale instead. Mortgage interest is not deductible for individuals under Section 24 — only a 20% tax credit applies.

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