Landlord Tax:
Buy to Let Tax Guide 2025

Landlords pay income tax on their net rental income (rental income minus allowable expenses) at their marginal rate — 20% (basic rate), 40% (higher rate) or 45% (additional rate). Since April 2020, mortgage interest relief has been restricted to the basic rate of tax (20%) under Section 24 — higher and additional rate taxpayers can no longer deduct the full mortgage interest from their rental income. Landlords must also pay Class 2 and Class 4 National Insurance if their rental income is treated as a trade.

Section 24 of the Finance (No. 2) Act 2015 restricts mortgage interest relief for individual landlords to the basic rate of income tax (20%). Before April 2020, landlords could deduct the full mortgage interest from their rental income before calculating tax. Now, higher and additional rate taxpayers receive only a 20% tax credit on their mortgage interest — meaning they pay more tax on the same rental income. This has significantly reduced the profitability of buy to let for higher rate taxpayers and driven many to consider limited company structures.

When a landlord sells a rental property, they pay capital gains tax (CGT) on the profit (sale price minus purchase price and allowable costs). The CGT rates for residential property are 18% (basic rate taxpayer) and 24% (higher rate taxpayer) — higher than the rates for other assets. The annual CGT exempt amount is £3,000 (2024/25). Landlords must report and pay CGT on residential property within 60 days of completion. Private Residence Relief may be available if the property was previously the landlord's main home.

Landlords can deduct allowable expenses from rental income before calculating tax. Allowable expenses include: letting agent fees; legal fees for tenancy agreements and renewals; accountancy fees; building and contents insurance; repairs and maintenance (not improvements); council tax and utilities (if paid by the landlord); ground rent and service charges; and a proportion of mortgage interest (as a 20% tax credit under Section 24). Capital expenditure (improvements) is not deductible as an expense but may reduce CGT on eventual sale.

Using a limited company can be tax-efficient for higher rate taxpayers because corporation tax (25%) is lower than higher rate income tax (40%), and mortgage interest is fully deductible as a business expense. However, there are additional costs (company administration, accountancy, higher mortgage rates) and transferring existing properties into a company triggers SDLT and CGT. The right structure depends on your individual circumstances — we advise on the legal aspects and recommend you also take specialist tax advice from a qualified accountant.

Since April 2016, buyers of additional residential properties (including buy to let) must pay a 5% SDLT surcharge on top of standard rates in England. This applies to all purchases of additional residential properties. In Wales, the equivalent LTT surcharge is 4%. The surcharge applies to the entire purchase price, not just the amount above the threshold. We advise on SDLT planning and can handle the conveyancing for buy to let purchases.