We get asked a lot of questions about buy-to-let (BTL) tax. We're not tax advisers, so we've put together this guide to answer the questions we hear most often from landlords.
Property tax rules have changed significantly over the last few years, and they could affect how much profit you keep from your rental income or a future sale. This page is reviewed periodically, but always check the current position with HMRC or your accountant, as rates and thresholds change at each Budget.
Contents
- Income tax and mortgage interest relief
- Other allowable expenses
- Cash basis vs accruals basis
- Repairs vs improvements
- Furniture and fittings
- Capital gains tax on selling a BTL
- Furnished holiday lettings
- Stamp duty land tax (SDLT)
- Using a limited company (SPV)
- Trusts and inheritance tax
- Next steps
Income tax: mortgage and loan interest
You cannot claim the capital repayment element of your mortgage against tax only the interest element, and even that is now restricted.
Since 6 April 2020, the old system of deducting mortgage interest (and other finance costs, such as arrangement fees) as a letting expense has been fully phased out. Instead, landlords who own property personally (rather than through a limited company) receive a basic-rate (20%) tax credit on their finance costs, applied after their taxable profit has been calculated. There's no further relief for higher or additional-rate taxpayers — the tax credit is capped at 20% regardless of your income tax band.
What this means in practice:
- Your taxable rental profit is calculated before deducting mortgage interest, then a 20% tax credit is applied to reduce your tax bill.
- Higher and additional-rate taxpayers get less relief than they would if interest were still a deductible expense.
- Basic-rate (20%) taxpayers are broadly unaffected, but the change can push some landlords into a higher tax bracket because gross rental profit (before the interest credit) counts toward your total income.
- You could end up paying tax even in a year where you have little or no cash left after mortgage payments.
Worked example: A higher-rate (40%) taxpayer with £10,000 of mortgage interest now gets a £2,000 tax credit (20% of £10,000), rather than the £4,000 deduction they'd have had before the rules changed — a difference of £2,000 a year.
Because of this, many landlords with several properties, or who pay tax at 40% or 45%, consider holding property through a limited company (SPV) instead, since companies are unaffected by this restriction (see below). This isn't right for everyone, speak to an accountant about your own position.
You can read HMRC's own guidance on restricting finance cost relief for individual landlords.
Other allowable expenses
Expenses that are wholly and exclusively for the letting business can usually still be deducted in full from rental income, including:
- Buildings insurance (and contents insurance, if the property is furnished)
- Heating and lighting (where paid by the landlord)
- Cleaning, gardening and security costs
- Ground rent and service charges
- Council tax while the property is vacant
- Repairs and maintenance (not improvements — see below)
- Replacing domestic items (see "Furniture and fittings")
- Redecorating and small tools
- Legal costs for preparing tenancy agreements (legal costs on the purchase or sale of the property are a capital gains tax matter, not a letting expense)
- Accountancy and debt collection fees
- Letting agents' fees and advertising for new tenants
- Travel costs incurred managing the property
HMRC's property income manual has the full, current list of allowable expenses.
Cash basis vs accruals basis
Rental accounts don't need to be complicated for a single property. Some landlords use an accountant, some use accounting software, and some manage things themselves in a spreadsheet — all are fine, provided your records are accurate.
Since 6 April 2017, most individual landlords with rental income up to £150,000 a year use the cash basis by default — recording income and expenses when money actually changes hands, rather than when it's owed. This tends to be simpler to manage, especially if you keep a separate bank account for your property income and costs. You can still elect to use the accruals basis if you prefer, or if your accountant recommends it.
Repairs or improvements?
Both are allowable, but they're relieved differently, so it's worth getting this right.
Repairs and maintenance (usually deductible against rental income in the year incurred) typically include:
- Painting and decorating
- Re-pointing existing brickwork
- Treating damp or rot
- Repairing existing windows, doors or equipment
- Replacing a roof like-for-like
Improvements — work that adds value or a new feature to the property, such as an extension or a loft conversion, aren't deducted against rental income. Instead, they're added to your costs and reduce your capital gains tax bill when you eventually sell.
The line between a repair and an improvement isn't always obvious. If in doubt, speak to your accountant or check HMRC's guidance before you claim.
Furniture and fittings
The old 10% "wear and tear allowance" for furnished lettings was withdrawn from 6 April 2016. Landlords can now only claim the actual cost of replacing furniture, appliances or furnishings (the "replacement of domestic items relief") not a flat percentage. Keep receipts for anything you replace, as you'll need them to support your claim.
Capital gains tax when you sell
If your buy-to-let has increased in value, the gain is normally subject to Capital Gains Tax (CGT) when you sell — unlike your main home, which is usually exempt under Private Residence Relief.
Current rates (from 6 April 2025):
- 18% on gains from residential property if you're a basic-rate taxpayer
- 24% on gains from residential property if you're a higher or additional-rate taxpayer (or on the portion of a gain that takes you into the higher-rate band)
Annual exempt amount: Each individual has a tax-free CGT allowance — currently £3,000 for the 2025/26 tax year (this has been cut sharply in recent years, from £12,300 in 2022/23, so many landlords now pay CGT on gains that would previously have been covered by the allowance).
You can generally deduct the costs of buying, selling and improving the property from your gain. Full detail is in HMRC's Capital Gains Manual.
If you're considering selling a property that's gained significant value, get specific advice from a tax adviser before you exchange contracts — timing and reliefs can make a real difference to the bill.
Furnished holiday lettings (FHL)
This section has changed significantly. The separate tax treatment for Furnished Holiday Lettings was abolished from 6 April 2025. Holiday lets are now taxed in the same way as any other residential rental property, which means:
- Mortgage interest is now restricted to the 20% tax credit (as above), rather than being fully deductible.
- The 10% Business Asset Disposal Relief rate on sale has gone — standard CGT rates (18%/24%) now apply.
- Capital allowances on furniture and equipment are no longer available for new purchases (existing pools can generally still be carried forward).
- FHL profits are no longer automatically treated as earnings for pension contribution purposes.
If you own a former FHL property, it's worth reviewing your position with an accountant, as some of these changes may affect how profits are split between joint owners (particularly spouses and civil partners).
Stamp Duty Land Tax (SDLT)
Buy-to-let and second-home purchases attract a Higher Rate for Additional Dwellings (HRAD) surcharge on top of standard SDLT.
Key current figures (England and Northern Ireland):
- The surcharge is 5% on top of standard rates (increased from 3% on 31 October 2024).
- From 1 April 2025, the standard nil-rate SDLT threshold reverted to £125,000 (down from the temporary £250,000 threshold).
- Companies buying residential property pay the surcharge on all purchases, and pay a flat 17% rate on the portion of any single dwelling's price above £500,000 (up from 15%).
- If you sell your previous main home within 36 months of buying a new one, you can reclaim the surcharge paid.
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SDLT rules have a lot of exceptions (inherited shares, married couples, "let-to-buy" scenarios, and more), so speak to your conveyancer or accountant if you're unsure how a purchase will be taxed.
Using a limited company (SPV)
Many landlords particularly higher-rate taxpayers or those with larger portfolios hold property through a Special Purpose Vehicle (SPV), a limited company set up specifically to hold buy-to-let property.
Key differences from personal ownership:
- The company pays Corporation Tax on profits, not Income Tax. Since April 2023, this is 19% for profits up to £50,000, 25% for profits over £250,000, with marginal relief tapering the rate in between.
- Mortgage interest is a normal deductible business expense for a company the personal-ownership finance cost restriction doesn't apply.
- Taking money out of the company (as salary or dividends) is taxed separately, so there can be a further tax charge on extraction.
- Companies don't get an annual CGT exemption on disposals.
- Inheritance tax treatment differs when you're passing on shares in a company rather than the properties themselves.
An SPV can offer more flexibility for tax planning, but comes with extra accountancy and admin costs, and existing personally-owned property usually can't be transferred into a company without triggering SDLT and CGT as if it were sold.
Trusts and inheritance tax
Holding property in a trust can, in some circumstances, offer Inheritance Tax planning benefits. Trust taxation is a specialist area if you're considering this, it's worth taking advice from a solicitor or tax adviser who specialises in trusts before making any changes. Sort Legal offer 30 mins free advice on estate planning
Next steps
This guide covers the questions we're asked most often, but every landlord's situation is different and, as shown above, the rules keep changing.
If you'd like to talk through your mortgage options for a single buy-to-let or a wider portfolio, get in touch with our team.
And if you'd rather go it alone on the tax side, that's fine too but let us help you sort the mortgage and the insurance. read more about buy-to-let mortgages in our guide.
Published date: September 2026
The information in this guide is correct as at the date on the document.
MyInfinity Finance Limited does not accept any responsibility for how the guide is used.