A Practical Guide to Buy-to-Let Tax for Landlords

Tax is an unavoidable part of buy-to-let ownership, but it is often misunderstood. For many landlords, uncertainty around tax is more stressful than the tax itself. With the right structure and advice, buy-to-let tax can be managed sensibly and predictably.

This guide sets out the key tax considerations landlords should be aware of, without unnecessary complexity.

Income tax on rental profits

Rental income is subject to income tax. What matters is not the rent received, but the profit, calculated after allowable expenses.

Allowable expenses typically include letting agent fees, management costs, repairs and maintenance, insurance, safety certificates, and certain professional fees. Keeping clear records of income and expenditure throughout the year is essential.

Tax is payable at your marginal income tax rate, so rental profits can push some landlords into a higher tax band. This is often where early planning makes the most difference.

Mortgage interest relief restrictions

One of the most significant changes affecting buy-to-let landlords in recent years is the restriction on mortgage interest relief.

Mortgage interest is no longer deducted from rental income in the traditional way. Instead, landlords receive a basic rate tax credit. For higher-rate taxpayers, this can materially affect the net return on a property.

This does not make buy-to-let unviable, but it does make structure and forecasting more important than it once was.

Capital gains tax when selling

When a buy-to-let property is sold, capital gains tax (CGT) may be payable on the increase in value.

CGT rates for residential property are higher than for other assets, and the timing of payment is now much tighter. In most cases, CGT must be reported and paid within 60 days of completion.

Allowable deductions may include purchase costs, selling costs, and certain capital improvements, but not routine maintenance. Understanding the difference matters.

Stamp duty on buy-to-let purchases

Buy-to-let properties attract a stamp duty surcharge, currently an additional percentage on top of standard residential rates.

This higher upfront cost should be factored into any investment decision. For portfolio landlords, stamp duty can significantly affect overall yield and cash flow.

Personal ownership vs company ownership

Many landlords consider whether to hold buy-to-let property personally or through a limited company.

Company ownership can offer advantages in some circumstances, particularly around mortgage interest and corporation tax, but it also comes with higher costs, different lending terms, and additional administrative responsibilities.

There is no one-size-fits-all answer. The right structure depends on the landlord’s wider financial position, long-term plans, and appetite for complexity. Specialist tax advice is essential before restructuring.

Why planning matters more than ever

Buy-to-let tax has become more nuanced, not punitive. The landlords who manage it best are those who plan ahead, keep proper records, and take advice early rather than reactively.

Tax should not be viewed in isolation. It sits alongside property management, financing, and long-term strategy. Decisions made without considering tax implications often have consequences later.

A joined-up approach to buy-to-let

At Hermens, we work with landlords who want clarity and structure, not surprises. While tax advice sits with specialist advisers, good property management plays a key role in ensuring records are accurate, expenses are properly documented, and decisions are made with foresight.

A well-managed property is easier to account for, easier to plan around, and ultimately easier to own.