Buy-to-Let Tax Rules: Income Tax, CGT, SDLT, and MTD

UK buy-to-let tax rules hit at three stages. You pay a Stamp Duty Land Tax surcharge of 5% when you buy, income tax at 20% to 45% on the rent you collect, and Capital Gains Tax of 18% or 24% on any profit when you sell. Individual landlords can no longer deduct mortgage interest from rental income; they get a 20% tax credit instead, which is the single biggest change to how the numbers work.

Income Tax on the Rent You Collect

Rental income is taxable. HMRC treats letting as a property business, and the rent you receive is added to your salary, pension, and other income to work out which band applies. For 2026/27:

Personal allowance: up to £12,570 at 0%
Basic rate: £12,571 to £50,270 at 20%
Higher rate: £50,271 to £125,140 at 40%
Additional rate: over £125,140 at 45%

These thresholds have been frozen since 2021 and stay at these levels through 2027/28.¹ Rising rents push landlords into higher bands each year without any real increase in what the money buys.

If your total rental income is £1,000 or less a year, the property income allowance keeps it tax-free and you don’t need to tell HMRC about it.² Above that, you can either deduct the £1,000 flat allowance from your gross rent or calculate your profit by subtracting actual expenses. Not both. For most landlords with a mortgage, insurance, and an agent, claiming actual expenses works out better.

Mortgage Interest: The 20% Credit

Section 24 of the Finance (No. 2) Act 2015 changed how mortgage costs work for individual landlords. You used to deduct mortgage interest from rent before calculating tax. Since 2020/21, no deduction is allowed for the costs of a dwelling-related loan.³

Instead, you get a tax credit worth 20% of your mortgage interest, applied to your final bill. For a basic-rate taxpayer that roughly matches the old deduction. For a 40% or 45% taxpayer it doesn’t. A higher-rate landlord paying £10,000 a year in mortgage interest used to save £4,000 in tax; the credit now saves £2,000.³

There’s a second effect that catches people out. Because rental income no longer gets reduced by mortgage costs before it lands on your tax return, the higher gross figure can push you into a higher band. A landlord comfortably inside basic rate under the old rules may now show enough income to trigger 40% tax on part of it. This is the most common source of nasty surprises for leveraged buy-to-let investors.

Expenses You Can Still Deduct

Plenty of other costs still reduce taxable rental profit. The test is that the expense must be wholly and exclusively for the letting business.⁴ Common deductibles:

Letting agent and management fees
Landlord insurance (buildings, contents, public liability)
Repairs and maintenance, such as fixing a boiler or replacing a broken window
Council tax and utilities during vacant periods between tenants
Legal and accountancy fees, including tenancy renewals and rental accounts
Ground rent and service charges on leasehold flats

The repair-versus-improvement line matters. Replacing a broken kitchen tap is a repair and fully deductible. Ripping out the whole kitchen and installing a higher-spec one is a capital improvement, which can’t come off rental income but can reduce your CGT bill when you sell.

Replacement of Domestic Items

If your rental is furnished, you can claim the cost of replacing furniture, appliances, floor coverings, curtains, and similar items.⁴ Two catches. Only replacements qualify: the initial cost of furnishing the property when you first let it is capital expenditure and isn’t deductible. And if you upgrade to something better than what was there, your deduction is capped at what a like-for-like replacement would have cost.⁵

Stamp Duty Land Tax on Purchase

Anyone buying an additional residential property pays a 5% SDLT surcharge on top of the standard rates.⁶ The surcharge rose from 3% to 5% on 31 October 2024, making the entry cost noticeably steeper. It applies to any residential purchase where the buyer already owns another property, in the UK or overseas.

From 1 April 2025, the combined rates for additional residential properties are:⁷

Up to £125,000: 5%
£125,001 to £250,000: 7%
£250,001 to £925,000: 10%
£925,001 to £1.5 million: 15%
Above £1.5 million: 17%

The rates apply where the price is at least £40,000. Non-UK residents pay a further 2% surcharge on top of these figures.⁷ SDLT is due within 14 days of completion and typically settled by your solicitor.

Capital Gains Tax When You Sell

Sell a buy-to-let for more than you paid and the profit is subject to Capital Gains Tax. Residential property carries higher CGT rates than other assets. From 6 April 2025 the rates are 18% for basic-rate taxpayers and 24% for higher or additional-rate taxpayers.⁸

Your gain is the sale price minus the original purchase price and allowable costs: solicitor fees, SDLT on the original purchase, agent fees on the sale, and any capital improvements during ownership. Each person has an annual exempt amount of £3,000 that isn’t taxed.⁹ On a typical property gain, that allowance shelters very little.

The 60-Day Reporting Rule

Residential property gains work differently from most other capital gains. You must report the gain and pay the tax within 60 days of completion, using a separate Capital Gains Tax on UK property account rather than your normal Self Assessment return.¹⁰ Miss the deadline and you pick up penalties and interest. The clock runs from completion, not exchange, so build the reporting into your post-sale checklist.

Holding Property Through a Limited Company

The Section 24 mortgage restriction applies only to individual landlords, not to companies.³ A limited company can still deduct 100% of mortgage interest as a business expense before calculating taxable profit. The company then pays corporation tax at the main rate of 25%, or the 19% small profits rate for companies with profits under £50,000.

For higher-rate landlords with substantial mortgage debt, this can produce a lower tax bill on rental profits. Money kept inside the company is taxed only at corporation tax rates; personal tax kicks in when you draw salary or dividends, which lets you time your income.

The trade-offs are real. Company buy-to-let mortgages typically carry higher rates. You’ll file company accounts and a corporation tax return each year, which adds accountancy fees. Moving a property you already own from personal name into a company triggers SDLT on the market value and a CGT disposal, which often makes transferring existing properties uneconomic. Most landlords who use this structure do so for new purchases.

Registering, Filing, and What’s Coming with MTD

You must register for Self Assessment by 5 October following the tax year in which you first received rental income. Start letting during 2025/26 (ending 5 April 2026) and you need to register by 5 October 2026.¹¹ Paper returns are due 31 October; online returns and any tax owed are due 31 January.

If your previous year’s Self Assessment bill was £1,000 or more and less than 80% of your tax was collected at source, you’ll also make payments on account. These are two advance payments toward the current year’s liability, each half of the previous year’s bill, due 31 January and 31 July.¹²

Late filing brings an immediate £100 penalty even if you owe nothing, with daily penalties and further percentage-based charges stacking on top the longer you leave it. Late payment attracts 5% surcharges at 30 days, 6 months, and 12 months, plus interest.¹³

Making Tax Digital for Income Tax is being phased in and will require digital record-keeping and quarterly updates through compatible software:¹⁴

From 6 April 2026: landlords and sole traders with qualifying income over £50,000
From 6 April 2027: those with qualifying income over £30,000
From 6 April 2028: those with qualifying income over £20,000

Qualifying income is combined gross income from self-employment and property, not profit. Collect £55,000 in rent with £20,000 profit after expenses and you’re still caught by the £50,000 threshold. You’ll need MTD-compatible software for digital records and quarterly submissions.¹⁵ If your current system is a spreadsheet or a shoebox of receipts, plan the switch now.

1
GOV.UK. Income Tax Personal Allowance and the Basic Rate Limit From 6 April 2026 to 5 April 2028
2
GOV.UK. Tax-Free Allowances on Property and Trading Income
3
Legislation.gov.uk. Finance (No. 2) Act 2015 – Section 24
4
GOV.UK. Work Out Your Rental Income When You Let Property
5
GOV.UK. Furnished Lettings: Replacement of Domestic Items Relief
6
GOV.UK. Stamp Duty Land Tax: Residential Property Rates
7
GOV.UK. Higher Rates of Stamp Duty Land Tax
8
GOV.UK. Capital Gains Tax: What You Pay It On, Rates and Allowances
9
GOV.UK. Capital Gains Tax Rates and Allowances
10
GOV.UK. Report and Pay Your Capital Gains Tax
11
GOV.UK. Self Assessment Tax Returns – Deadlines
12
GOV.UK. Understand Your Self Assessment Tax Bill – Payments on Account
13
GOV.UK. Self Assessment Tax Returns – Penalties
14
GOV.UK. Find Out if and When You Need to Use Making Tax Digital for Income Tax
15
GOV.UK. Making Tax Digital for Income Tax for Sole Traders and Landlords