Buy-to-Let Tax UK: The Rules That Actually Cost Landlords Money

Rental income is taxed at your marginal rate, so 20%, 40%, or 45% depending on your total income. You can deduct genuine running costs: letting agent fees, insurance, maintenance, and ground rent, but not mortgage capital repayments.

The change that reshuffled the numbers for most landlords came in April 2020. Section 24 removed the right to deduct mortgage interest as a letting expense. You now get a 20% tax credit on your interest payments instead. For a basic-rate taxpayer the outcome is roughly the same, but for a higher-rate taxpayer it is materially worse: your full rental income counts as taxable income, pushing you into a higher band or making your existing higher-rate tax bill larger, and you only get a 20% credit back on the interest. Many landlords who looked profitable on paper before 2020 are now making losses after tax. This is the single biggest trap in buy-to-let tax, and it catches people who have not revisited their spreadsheets since the rules changed.

On disposal, residential property CGT rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on the gain above your annual exempt amount. There is also the timing rule: you must report and pay CGT on a UK property sale within 60 days of completion. Miss that window and HMRC charges interest and can issue penalties. The deadline is short enough that you need to plan for it before exchange, not after completion.

When you buy, the 5% stamp duty surcharge applies on top of standard SDLT rates for additional residential properties. That cost goes in on day one and does not come back.

A growing number of landlords are looking at whether a limited company structure is more efficient. Companies pay corporation tax at 25% on rental profits, and mortgage interest is still fully deductible within a company. The arithmetic can be compelling, especially for higher-rate taxpayers with larger portfolios. The practical constraint is that transferring properties you already own personally into a company triggers both CGT and stamp duty on the transfer at market value, which often makes it uneconomic for existing stock. It tends to make sense only for new purchases, or where the portfolio is large enough that the ongoing tax saving outweighs the entry cost.