Stamp Duty on Buy-to-Let Purchases (2025)
Since 31 October 2024, the Stamp Duty Land Tax surcharge on additional residential properties in England and Northern Ireland increased from 3% to 5%. This surcharge applies on top of standard SDLT rates for every band. For a £250,000 buy-to-let purchase in 2025/26: Standard SDLT: £0 (below £125k) + £2,500 (£125k-£250k at 2%) = £2,500. Surcharge: 5% × £250,000 = £12,500. Total SDLT: £15,000. The equivalent transaction for a first home would cost £2,500. This significantly impacts the return on investment for new buy-to-let purchases and has contributed to many landlords exiting the market. The surcharge is refundable only if the additional property replaces a main residence sold within 3 years.
"This surcharge applies on top of standard SDLT rates for every band"
Income Tax on Rental Profits
Rental income is taxed as income — it is added to your other income for the year and taxed at your marginal rate (20%, 40%, or 45%). Your taxable rental profit is calculated as: gross rental income minus allowable expenses. You cannot use the property's capital repayments as an expense. The profit is declared on your Self Assessment tax return each year. If your total income pushes you into higher rate territory, the marginal tax on rental profits is 40%. Important: rental income also counts toward your adjusted net income for the purposes of the Personal Allowance taper, High Income Child Benefit Charge, and Marriage Allowance eligibility.
Mortgage Interest Restriction (Section 24)
Since April 2020, landlords can no longer deduct mortgage interest directly from rental income to reduce their tax bill. Instead, you receive a 20% tax credit on the full amount of mortgage interest paid. For a basic rate taxpayer, this makes no practical difference. For a higher rate taxpayer, the impact is significant: previously they could deduct £10,000 of mortgage interest and save £4,000 in tax (40%); now they receive a £2,000 tax credit (20% of £10,000) — a difference of £2,000 per year per property. This has turned profitable properties into loss-making ones on paper for many higher rate landlord taxpayers. Holding properties in a limited company is one strategy to mitigate this, though it comes with its own costs and complications.
Allowable Expenses You Can Deduct
The following are deductible expenses against rental income: letting agent fees and management charges; landlord insurance (buildings and contents); maintenance and repairs (like-for-like — not improvements); council tax and utilities if paid by the landlord during voids; accountancy fees for preparing rental accounts; legal fees for tenant disputes or preparing new tenancy agreements under one year; advertising costs to find tenants; mortgage arrangement fees (spread over the mortgage term); professional cleaning between tenancies. You cannot deduct: the cost of acquiring the property; capital improvements (these are added to your capital gains base cost instead); mortgage capital repayments; your own time or labour. Keep all receipts — HMRC can audit rental accounts up to four years back.
"Keep all receipts — HMRC can audit rental accounts up to four years back."
The Property Income Allowance
If your total rental income is below £1,000 per year, you do not need to declare it or pay tax — the Property Income Allowance covers it. If your income is above £1,000, you cannot use both the allowance and deduct actual expenses — you choose one or the other. For most landlords with a mortgaged property, deducting actual expenses will always be more beneficial than the £1,000 allowance.
Capital Gains Tax When You Sell
When you sell a buy-to-let property, you pay Capital Gains Tax on the gain: selling price minus original purchase price, minus buying costs (stamp duty, legal fees), minus selling costs (estate agent, legal fees), minus capital improvements. From 30 October 2024, the CGT rates on residential property are: 18% for basic rate taxpayers, 24% for higher rate taxpayers. The Annual Exempt Amount is £3,000 in 2025/26 — gains below this are tax-free. Critically, you must report and pay CGT within 60 days of completion using the HMRC online CGT service — even before your Self Assessment return is due. Late filing penalties start immediately after the 60-day window.
Limited Company Buy-to-Let
Some landlords hold buy-to-let properties through a limited company to access full mortgage interest deductibility (companies are not subject to the Section 24 restriction), pay corporation tax at 19–25% rather than income tax at 40–45%, and retain profits within the company at the lower rate. However, there are significant disadvantages: mortgage products for limited companies are fewer and more expensive; there are ongoing accountancy and filing costs; extracting profits as salary or dividends creates additional tax; and transferring personally held properties into a company triggers a CGT and SDLT event. The limited company route is generally worth considering for new purchases only and is most beneficial for higher rate taxpayers with large portfolios.
Many landlords — particularly those who became accidental landlords or have not reviewed their tax position recently — are unaware that mortgage interest is no longer deductible in full against rental income. Instead, you receive a 20% tax credit. For higher rate taxpayers, this effectively means they are taxed on turnover (gross rent) rather than profit, dramatically increasing their tax bill. If you are a higher rate taxpayer with a mortgaged buy-to-let, you should model your actual tax position carefully — the numbers may have changed significantly since you acquired the property.
Finance Motion — General guidance only.
Not regulated financial advice.