What taxes do landlords need to pay on a buy-to-let property?

At a glance

• There are four key taxes that your investment in a buy-to-let (BTL) property could incur: stamp duty, income tax, capital gains tax and inheritance tax.
• It’s possible to form a limited company to mitigate some of your BTL tax obligations, but there are several factors and regulations which must be taken into consideration.
• Landlords can claim tax relief for costs incurred in replacing some domestic items and appliances, such as televisions, white goods, carpets and curtains.

For many, property is seen an attractive investment opportunity that has numerous benefits, not least the chance to earn rental income. However, buy-to-let (BTL) is subject to several taxes, regardless of whether you own a single property or 100, and it’s important to be aware of them so you can decide if it’s going to be a lucrative opportunity for you or not. So, let’s take a closer look at the taxes you may have to pay as a buy-to-let landlord.

Stamp duty on buy-to-let properties

Stamp duty is the first tax to bear in mind. You may have to pay stamp duty when you buy any property in the UK, but for BTL properties, the rates are higher, set at 5% above the tax rates for residential purchases.

You’ll pay a tiered rate of tax depending on the price of the property, as the table below highlights (rates are correct as at 1 August 2025):

Stamp duty is a one-off tax. This means that if you decide to rent out your home after purchasing it (perhaps because you're moving in with a partner and can’t or don’t want to sell your own property), you wouldn't have to pay it again.

Note that the above rates of stamp duty are payable on any second homes as well as a buy-to-let property, and that the figures only apply to England and Northern Ireland (the taxes are different in Wales and Scotland).

You can use our stamp duty calculator to see how much your bill could be.

Tax on rental income

Any rental income you receive is taxable, which means you’ll need to declare it as part of your self-assessment tax return. The amount you’ll pay is based on your usual income tax banding (20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate), but be mindful of the fact that if you have another form of income, the rent may push you into a higher tax bracket.

Depending on your status and the amount of profit you earn, you may also have to pay National Insurance contributions, and you’ll be expected to keep a record of your income and expenses as a buy-to-let landlord for at least six years. There are things you may be able to do to reduce the amount of tax you pay, which we’ll discuss more below.

New rules are coming into place from 2026 that will affect how you report and pay for your tax liabilities. While you currently have to submit an annual tax return, and can do so online or on paper, the Government’s Making Tax Digital (MTD) plan will soon require you to submit quarterly returns using MTD-compatible software, moving to a fully online-only filing system. Speak to your accountant if you’re unsure what this means for you.

What were the buy-to-let tax changes?

In April 2020, sweeping changes were brought into the BTL tax landscape which means many landlords have since had to pay higher levels of tax.

Before 2017, mortgage interest payments were an allowable expense that landlords could deduct from their profits to calculate their taxable income. However, this form of tax relief was gradually reduced until 2020, when it was replaced entirely by a 20% tax credit. This means that landlords can now only claim relief on 20% of their mortgage interest payments, whereas under the previous system, they could have had tax relief of up to 45% depending on their tax bracket. This has made BTL much less lucrative for higher and additional rate taxpayers as a result.

EXAMPLE: Let’s say you’re a higher rate taxpayer and have a buy-to-let property that’s earning £20,000 a year in rental income. You also have £10,000 in expenses, which includes mortgage interest. Prior to 2017, you’d have only paid tax on your £10,000 profit, which based on a 40% tax charge would be £4,000.

Now, you have to pay income tax on the full £20,000 (£8,000), minus 20% tax relief on your £10,000 of expenses (£2,000). This leads to a tax bill of £6,000, or £2,000 more than pre-2017 levels.

Do limited companies pay less tax on buy-to-let properties?

Potentially, but it depends on the type of tax you’re talking about and the rates at which you’d be charged, together with how you’re planning to take an income from your properties. You’d need to get a specialist buy-to-let mortgage for limited companies too, which typically come with higher rates.

First of all, you should know that limited companies are exempt from the mortgage relief restriction that came into force from April 2017. This is because any interest made from a business property is classified as a business expense and is therefore fully deductible against income. So, from this respect, you could pay less tax as your profits will be lower.

However, because you’re now being taxed as a company rather than an individual, you’ll have to pay corporation tax instead, which is charged at a fixed rate regardless of the size of your profits. This rate is currently 25%, and could particularly benefit higher and additional rate taxpayers, who could essentially benefit from a reduced tax rate.

You should also bear in mind that you may instead be taxed when you’re looking to access the money earned by your limited company:

• Dividend. If you’re choosing to access your earnings as a dividend, the first £500 of that is tax-free – but any dividends in excess of that will be charged at either 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers or 39.35% for additional rate taxpayers. This is after the corporation tax at 25%, so depending on how much of an income you’re going to take, your bill could quickly add up.
• Salary. If you instead choose to take the earnings as a salary, your limited company would have to operate PAYE and include National Insurance contributions. In most cases, this will work out as more expensive than taking the money as dividends.

It’s a complex area of tax, and while incorporating could make sense for some landlords, it’s important to seek advice from a specialist before considering forming a buy-to-let limited company.

Can I avoid paying tax on rental income?

You can minimise the amount of tax you have to pay by deducting certain "allowable expenses" from your taxable rental income, but you won’t be able to avoid it altogether. Allowable expenses refer to any costs you incur in order to manage your rental property, such as:

• Landlord insurance
• Property repairs and maintenance
• Letting agent fees
• Legal fees
• Council tax and utility bills (if paid for by you and not the renter)
• Cleaning and gardening services (if provided)

As mentioned above, landlords can also receive 20% tax relief on buy-to-let mortgage interest payments, and there’s also a relief available for costs incurred in replacing some domestic items that you provide (such as curtains, sofas and carpets).

If you're unsure, an accountant can help you make the most of your allowable deductions so that you don't pay more tax than you’re obliged to.

Tax on holiday lets

Prior to April 2025, furnished holiday lets (FHLs) benefited from certain tax advantages, including capital allowances on both movable furnishings and fixtures, capital gains tax relief, holiday let mortgage interest relief and tax-advantaged pension contributions.

However, the FHL tax regime was removed at the start of the 2025/26 tax year, which means holiday lets are now treated the same as residential BTL properties for income tax purposes. Allowable expenses, which previously operated in the same way as for residential lets, and are still in place.

Capital gains tax on rental property

When you eventually sell the property, you’ll need to pay capital gains tax (CGT), but only if you've made a profit. It isn't payable if you make a loss.

You get an annual tax-free allowance of capital gains that you can make each tax year before CGT is charged, which stands at £3,000 for the 2025/26 tax year. When you sell a BTL property you’ll need to declare it on your tax return, and if the profit you make is over £3,000, you’ll be taxed accordingly (basic rate taxpayers have a CGT rate of 18% for residential property, which rises to 24% for higher rate taxpayers).

If you've made a loss on a buy-to-let property sold in a previous year, you may be able to use this loss to reduce your capital gains bill. Similarly, you can deduct some expenses you've incurred in buying, selling or improving the property, such as:

• Solicitors’ fees
• Estate agent fees
• Costs involved in advertising the property for sale
• Costs incurred in increasing the property's value (improvements, but not maintenance or general upkeep costs)
• Stamp duty

Inheritance tax on buy-to-let properties

It’s likely that you’ll need to pay inheritance tax (IHT) on your buy-to-let property if the value of your estate is above certain thresholds.

The inheritance tax nil-rate band currently stands at £325,000, so if an individual's estate exceeds £325,000 (or £650,000 for married couples or civil partners, rising to £1m if the estate includes residential property being passed onto children), IHT is charged at 40%. Note that the tax will only be charged on the amount that exceeds the nil rate band, and if the estate is worth less than £325,000, there’s no tax to pay whatsoever. Bear in mind too that the exception to this is any estates passing to the spouse or civil partner, which are free of inheritance tax.

Your buy-to-let property (or properties) will form part of your estate for inheritance tax purposes, and so IHT can apply accordingly. However, you may qualify for Business Relief if your buy-to-let portfolio was run as a business, though this will depend on several factors.

A good accountant may be able to help you reduce your exposure to IHT. Read more about it in our guide to inheritance tax.