Tax Intelligence Hub
How Tax Works on Buy-to-Let in the UK
Buy-to-let is the deal type most affected by the Section 24 mortgage-interest restriction. Here is how tax applies from purchase, through the years you hold and rent it, to the point you sell.
Educational guidance only. This is general information about how UK property taxes typically work by deal type — it is not tax, legal or financial advice, and rates and rules change. Always confirm your position with a qualified accountant or tax adviser before making any investment decision.
Buying-in taxes
- Stamp Duty Land Tax (SDLT) — standard residential bands apply on the purchase price.
- 3% additional-property surcharge — added to every band if you already own any residential property anywhere in the world.
- Limited-company purchase — the 3% surcharge still applies, and the 15% flat rate can apply to homes over £500k bought by certain corporate bodies.
- Land Transaction Tax (Wales) / Land & Buildings Transaction Tax (Scotland) — the devolved equivalents of SDLT if the property is there.
- No first-time-buyer relief on a buy-to-let purchase.
- VAT — not normally chargeable on a second-hand residential purchase.
Taxes while you own & rent it
- Income Tax — net rental profit taxed at your marginal rate (20% / 40% / 45%) if held personally.
- Section 24 — mortgage interest is not a deductible expense; instead you get a 20% basic-rate tax credit, hitting higher/additional-rate landlords hardest.
- Corporation Tax — if held in a limited company, profits are taxed at company rates and mortgage interest is fully deductible.
- Dividend / salary tax — extracting company profits triggers dividend tax or PAYE on top.
- Council Tax — liable during any void periods when there is no tenant.
- Class 2/4 National Insurance — only if HMRC treats your letting as a trade (rare for standard BTL).
Taxes when you sell or pass it on
- Capital Gains Tax (CGT) — charged on the gain after the annual exempt amount, at residential rates (currently 18% basic / 24% higher).
- 60-day CGT reporting — UK residential disposals must be reported and the tax paid within 60 days of completion.
- Corporation Tax on gains — company-held property pays this instead of personal CGT.
- Inheritance Tax (IHT) — the property counts in your estate at 40% above the nil-rate band if passed on death.
- No Private Residence Relief — unless it was genuinely your main home for a period.
Tax lifecycle
Worked Example — Higher-Rate Landlord
£250,000 terraced house, £1,200/month rent, bought personally by a higher-rate (40%) taxpayer with a 75% interest-only mortgage at 5.5%.
Additional-property surcharge applied across all bands.
Not deductible — replaced by a 20% credit under Section 24.
Basic-rate credit on the £10,313 interest.
Annual position — where the rent goes
Under pre-2017 rules the £10,313 interest would have been fully deductible, cutting the tax to roughly £835 — the Section 24 gap is the single biggest BTL tax change.
Personal Ownership vs Limited Company
Colour indicates the factually more/less favourable figure per row, not a recommendation.