How much tax do I pay on rental income UK?

Rental income is added to your other income and taxed at your marginal Income Tax rate — 20% (basic rate), 40% (higher rate), or 45% (additional rate). You can deduct allowable expenses (letting agent fees, repairs, insurance, etc.) from your rental income before tax. Mortgage interest is no longer deductible as an expense — instead you receive a 20% tax credit on mortgage interest payments. You must declare rental income on a Self Assessment tax return.

Can I still deduct mortgage interest on a buy-to-let?

Not as an expense, no. Since April 2020, mortgage interest is no longer an allowable deduction from rental income. Instead, you receive a tax credit worth 20% of your mortgage interest payments. This means basic rate taxpayers are unaffected, but higher rate and additional rate taxpayers pay significantly more tax than before the rules changed. This is often called 'Section 24' or the 'tenant tax'.

How much Capital Gains Tax do I pay when I sell a buy-to-let?

When you sell a buy-to-let property, you pay CGT on the profit (sale price minus purchase price minus allowable costs). The rates for residential property are 18% for basic rate taxpayers and 24% for higher rate taxpayers (2025/26 onwards). You can deduct the annual CGT exempt amount (£3,000 for 2025/26), plus costs like stamp duty paid on purchase, solicitor fees, and qualifying improvement costs. You must report and pay within 60 days of completion.

Should I put my buy-to-let in a limited company?

Possibly, but it depends on your circumstances. A limited company pays Corporation Tax (25%) instead of Income Tax, and can still deduct mortgage interest as a business expense. However, extracting profits from the company triggers additional tax (dividend tax or salary). A company structure is often more tax-efficient for higher rate taxpayers, landlords with large mortgages, or those building a portfolio. But there are costs (accountancy, filing), and mortgage rates for company buy-to-lets are higher. Get specialist advice before restructuring.

Buy-to-Let Tax Guide UK — Complete Landlord Tax Breakdown | PocketWise

Owning a buy-to-let property involves multiple taxes — rental income tax, mortgage interest restrictions, Capital Gains Tax on sale, and Stamp Duty on purchase. Here is how each one works.

Taxes on Buy-to-Let Property — Overview

Tax	When it applies	Rate
Income Tax on rent	While you own and let the property	20%/40%/45% on net rental profit
Mortgage interest tax credit	Against your tax bill	20% credit (not a deduction)
Stamp Duty (surcharge)	When you buy	Standard rates + 5% surcharge
Capital Gains Tax	When you sell	18% (basic rate) / 24% (higher rate)
National Insurance	On rental income	Not charged — rental income is not earned income
Corporation Tax	If held in a limited company	25%

Income Tax on Rental Income

How to Calculate Your Tax Bill

Step	Calculation
1. Total rental income	Annual rent received
2. Minus allowable expenses	Letting agent fees, repairs, insurance, etc.
3. = Taxable rental profit	Added to your other income
4. Tax at your marginal rate	20%, 40%, or 45%
5. Minus 20% mortgage interest credit	20% × total mortgage interest paid
6. = Tax due on rental income

Worked Example — Higher Rate Taxpayer

Item	Amount
Annual rent received	£12,000
Allowable expenses (excluding mortgage interest)	-£2,500
Taxable rental profit	£9,500
Tax at 40% (higher rate)	£3,800
Mortgage interest paid per year	£6,000
20% tax credit on mortgage interest	-£1,200
Net tax on rental income	£2,600

Under the old rules (pre-2020), the £6,000 mortgage interest would have been deducted from rental income, making the taxable profit £3,500, and tax at 40% just £1,400. The new rules cost this landlord an extra £1,200 per year.

Allowable Expenses

Expense	Deductible?	Notes
Letting agent fees	Yes	Management fees, tenant finding fees
Repairs and maintenance	Yes	Fixing boiler, repainting, replacing broken window
Insurance (landlord)	Yes	Buildings, contents, rent guarantee
Ground rent and service charges	Yes	If leasehold property
Council tax (if you pay it)	Yes	Only for void periods where landlord pays
Water rates (if you pay)	Yes	Only if included in rent
Accountancy fees	Yes	Preparing rental accounts and tax return
Legal fees (tenancy)	Yes	Drawing up tenancy agreements, eviction costs
Advertising for tenants	Yes	Rightmove, OpenRent listings
Travel to property	Yes	Reasonable travel to inspect, manage, or carry out repairs
Stationery, phone calls	Yes	Related to the letting business
Energy Performance Certificate	Yes	Legally required
Gas safety certificate	Yes	Annual legal requirement
Mortgage interest	No	20% tax credit instead — not a deductible expense
Improvements	No	Adding an extension, new kitchen upgrade (capital expense — may reduce CGT later)
Your own time/labour	No	You cannot charge for your own work
Furniture for unfurnished let	No	Unless replacement (see below)

Replacement of Domestic Items Relief

Rule	Detail
What qualifies	Like-for-like replacement of furnishings (sofas, carpets, curtains, appliances)
What doesn’t qualify	Initial furnishing of a property, or upgrading to a more expensive item (only the like-for-like cost is deductible)
How to claim	Deduct as an expense on your tax return

Mortgage Interest Tax Credit (Section 24)

Detail	Information
Old rules (before April 2017)	Mortgage interest fully deductible as an expense
Phased in	2017–2020
Current rules (since April 2020)	No deduction — instead a 20% tax credit
Impact on basic rate taxpayers	None — 20% deduction replaced by 20% credit = same result
Impact on higher rate taxpayers	Significant — effectively only 20% relief instead of 40%
Impact on additional rate taxpayers	Severe — only 20% relief instead of 45%

Tax Impact by Rate — Example (£6,000 Mortgage Interest)

Tax band	Old rules (deduction)	New rules (credit)	Extra tax per year
Basic rate (20%)	£1,200 relief	£1,200 relief	£0
Higher rate (40%)	£2,400 relief	£1,200 relief	£1,200
Additional rate (45%)	£2,700 relief	£1,200 relief	£1,500

The Pushed-into-Higher-Rate Problem

Section 24 can push you into a higher tax band because the full rental income (without mortgage interest deduction) is added to your other income:

Scenario	Without rental	With rental (old rules)	With rental (new rules)
Employment income	£45,000	£45,000	£45,000
Rental income	—	£12,000	£12,000
Minus mortgage interest	—	-£8,000	£0 (credit only)
Total taxable income	£45,000	£49,000	£57,000
Tax band	Basic rate	Basic rate	Higher rate

Stamp Duty — Buy-to-Let Surcharge

When buying a buy-to-let (or additional property), you pay the standard Stamp Duty rates plus a 5% surcharge on the entire purchase price:

Purchase price band	Standard rate	Buy-to-let rate (with 5% surcharge)
£0–£125,000	0%	5%
£125,001–£250,000	2%	7%
£250,001–£925,000	5%	10%
£925,001–£1,500,000	10%	15%
Over £1,500,000	12%	17%

Example: Buy-to-Let at £250,000

Band	Taxable amount	Rate	Tax
£0–£125,000	£125,000	5%	£6,250
£125,001–£250,000	£125,000	7%	£8,750
Total Stamp Duty			£15,000

Without the surcharge, the same property would cost £2,500 in Stamp Duty.

Capital Gains Tax When You Sell

Detail	Information
CGT rate (basic rate taxpayer)	18%
CGT rate (higher rate taxpayer)	24%
Annual exempt amount (2025/26)	£3,000
Reporting deadline	Within 60 days of completion
Payment deadline	Within 60 days of completion

Calculating Your CGT

Item	Calculation
Sale price	e.g. £300,000
Minus purchase price	-£200,000
Minus purchase costs (stamp duty, solicitor)	-£16,500
Minus selling costs (agent fees, solicitor)	-£6,000
Minus qualifying improvements	-£10,000
= Gain	£67,500
Minus annual exempt amount	-£3,000
= Taxable gain	£64,500
CGT at 24% (higher rate)	£15,480

What Counts as an Improvement (Reduces CGT)?

Improvement (deductible)	Repair (not deductible for CGT — but deductible from rental income)
Extension	Fixing a broken boiler
Loft conversion	Repainting walls
New kitchen (where none existed or significant upgrade)	Replacing broken window
New bathroom (significant upgrade)	Patching a roof
Double glazing (replacing single)	Like-for-like boiler replacement

Limited Company vs Personal Ownership

Feature	Personal ownership	Limited company
Income Tax rate	20%/40%/45%	Corporation Tax 25%
Mortgage interest	20% tax credit only	Fully deductible expense
Extracting profits	Directly yours	Dividend tax or salary (additional tax)
CGT on sale	18%/24%	Corporation Tax 25%, then tax on extraction
Mortgage rates	Lower	Typically 0.5%–1.5% higher
Set-up costs	Minimal	Company formation, accountancy (£1,000–£3,000/year)
Privacy	Property linked to you	Property linked to company
Stamp Duty on transfer	Must pay SDLT on market value transfer	—
Best for	Basic rate taxpayers, small mortgages	Higher rate taxpayers, large mortgages, portfolio landlords

Warning: Transferring an existing property into a company triggers Stamp Duty (with surcharge) and Capital Gains Tax. It is usually only worth doing for new purchases.

Record Keeping

Record	How long to keep
Rental income records	5 years after 31 January following the tax year
Expense receipts	5 years after 31 January following the tax year
Purchase records (for CGT)	Until 5 years after selling the property
Mortgage statements	Until 5 years after selling
Improvement receipts	Until 5 years after selling — these reduce your CGT