Buy to let tax: what landlords pay in 2026

When you purchase a buy-to-let property in England or Northern Ireland, you pay stamp duty land tax (SDLT) at standard residential rates plus a 5% surcharge on each band. This surcharge applies because a buy-to-let counts as an additional property. The 5% rate took effect from 31 October 2024, replacing the previous 3% surcharge.

The surcharge applies to the entire purchase price, calculated on top of the standard SDLT bands. For a buy-to-let purchase at £300,000, the total stamp duty bill comes to £19,500: that is £2,500 at standard rates plus £15,000 surcharge plus £2,000 in the higher band.

In Scotland, the equivalent is the land and buildings transaction tax (LBTT) with an additional dwelling supplement of 8% on properties over £40,000. In Wales, you pay land transaction tax (LTT) with a 4% higher rates surcharge. These are devolved taxes with their own bands and thresholds, so check the relevant revenue authority for exact calculations.

You must pay stamp duty within 14 days of completion. Late payment triggers automatic interest charges and potential penalties. Your conveyancer typically handles the payment and filing on your behalf.

Rental income from your buy-to-let property is added to your other income and taxed at your marginal rate. For the 2025-26 tax year, the income tax bands are: 0% on the first £12,570 (personal allowance), 20% on income from £12,570 to £50,270, 40% on income from £50,270 to £125,140, and 45% on income above £125,140.

If you earn £45,000 from your day job and receive £12,000 in annual rent, your total income is £57,000. The rental income pushes you into the higher-rate band, meaning a portion of your rent is taxed at 40% rather than 20%. This is a critical consideration many new landlords overlook when calculating rental yield.

You report rental income through self-assessment. The tax year runs from 6 April to 5 April, and you must register for self-assessment by 5 October following the end of the tax year in which you first received rental income. The online filing deadline is 31 January.

Every landlord gets a £1,000 property income allowance. If your gross rental income is under £1,000, you pay no tax and do not need to report it. If your income exceeds £1,000, you can either deduct the £1,000 allowance instead of actual expenses, or claim your actual allowable expenses, whichever gives you the better result. Most landlords with mortgage payments and other costs will benefit more from claiming actual expenses.

Section 24 of the Finance Act 2015 changed how landlords claim tax relief on mortgage interest. Before April 2020, you could deduct your full mortgage interest payments from rental income before calculating tax. Now, mortgage interest is no longer deductible as an expense. Instead, you receive a tax credit worth 20% of your mortgage interest costs.

This change has no effect on basic-rate taxpayers, who already paid 20%. But for higher-rate taxpayers at 40%, the difference is significant. On £10,000 of annual mortgage interest, the old system saved you £4,000 in tax (40% deduction). Under Section 24, you get a £2,000 tax credit (20%), costing you £2,000 more per year.

Section 24 can also push you into a higher tax band. Your taxable rental income is now calculated before the mortgage interest credit, meaning your gross rental profit appears higher on paper. This can affect your personal allowance (tapered above £100,000), child benefit (high income charge above £60,000) and student loan repayments.

This is the main reason many landlords now consider holding buy-to-let property through a limited company. Companies pay corporation tax at 25% on profits, and mortgage interest remains fully deductible as a business expense. Whether a company structure saves you money depends on your personal circumstances, so get professional advice before restructuring.

When you sell a buy-to-let property for more than you paid, you owe capital gains tax (CGT) on the profit. CGT rates on residential property are higher than on other assets: 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. These rates apply for the 2025-26 tax year.

Your taxable gain is calculated as: sale price minus purchase price, minus purchase costs (stamp duty, legal fees), minus improvement costs (not repairs), minus selling costs (estate agent and legal fees). You also get an annual CGT exemption of £3,000 for 2025-26, down from £6,000 the previous year.

You must report and pay CGT on UK residential property within 60 days of completion using the HMRC "report and pay capital gains tax on UK property" service. This is separate from your self-assessment return, though you still declare it on your annual return as well. Missing the 60-day deadline triggers late filing penalties and interest charges.

If you have owned the property as your main home at any point, you may qualify for partial private residence relief. The final 9 months of ownership are always exempt, regardless of whether you lived there. Lettings relief is now limited to situations where you shared the property with your tenant.

You can deduct a range of expenses from your rental income to reduce your tax bill. The key distinction is between revenue expenses (deductible) and capital expenses (not deductible but may reduce CGT when you sell). Repairs are revenue expenses. Improvements are capital.

Allowable revenue expenses include:

• Letting agent fees: Typically 8-15% of rental income for full management
• Insurance: Landlord buildings and contents insurance, rent guarantee insurance
• Repairs and maintenance: Fixing boilers, replacing broken windows, repainting in the same standard
• Ground rent and service charges: For leasehold properties
• Accountancy fees: For preparing rental accounts and tax returns
• Legal fees: For renewing tenancies (not for buying or selling)
• Council tax and utilities: Only during void periods when the property is empty
• Travel costs: Journeys to inspect or maintain your property

If you provide furnished accommodation, you can claim a replacement domestic items relief. This lets you deduct the cost of replacing furnishings like sofas, beds, carpets, curtains and white goods, but only when you replace a like-for-like item. You cannot claim the cost of the original items.

Keep detailed records of every expense with receipts. HMRC can investigate your tax return up to 6 years after the end of the tax year (or 20 years if they suspect deliberate under-reporting). Good record-keeping also helps when calculating your buy-to-let mortgage affordability, as lenders want to see realistic profit projections.

Since Section 24 removed full mortgage interest relief for individual landlords, buying through a limited company (often called an SPV, special purpose vehicle) has become increasingly popular. In a company structure, mortgage interest is fully deductible as a business expense, and profits are taxed at corporation tax rates: 25% for profits over £250,000, or 19% for profits up to £50,000, with marginal relief between those thresholds.

For a higher-rate taxpayer with significant mortgage costs, the tax saving can be substantial. However, a limited company buy-to-let comes with trade-offs:

• Higher mortgage rates: Company buy-to-let mortgage rates are typically 0.5-1.5% higher than personal rates
• Additional costs: Company formation, annual accounts, corporation tax returns, confirmation statements
• Extracting profits: Taking money out of the company triggers additional tax through dividends or salary
• Stamp duty on transfers: Moving existing properties into a company counts as a sale, triggering full stamp duty including the 5% surcharge
• Mortgage availability: Fewer lenders offer company buy-to-let mortgages, though the market is growing

A company structure tends to work best for higher-rate taxpayers buying new properties (avoiding the transfer stamp duty cost), landlords who plan to reinvest profits into more properties rather than extracting income, and portfolio landlords with four or more properties. For basic-rate taxpayers with one or two properties and small mortgages, the additional costs and complexity often outweigh the tax savings.

The decision is complex and depends on your personal tax situation, long-term plans, and current portfolio. Get advice from an accountant who specialises in property tax before making this choice.