A guide to Buy to Let property tax
25.01.2023
7 min read
11.06.2024
6 min read
As a first-time landlord, there’s quite a lot to learn about Buy to Let property tax. We cover all you need to know.
When you buy a property to let, there are a few different types of tax to pay. These include:
How much tax you pay depends on factors that are unique to you. Like how much money you earn from rental income and any other jobs or businesses you have (more on this below).
Historically, all of this has been pretty complicated (cue: landlords tearing their hair out over every tax return). That’s why we invented Hammock, a property finance platform for landlords that lets you track payments and expenses in real-time, get key metrics on your investment, and massively cut down the time you spend filing taxes.
But back to this guide for now – read on for all you need to know about paying tax on a Buy to Let property.
Before we get stuck into the ins and outs of Buy to Let property tax, there’s a big change coming up to be aware of. Making Tax Digital (MTD) is a government initiative designed to completely digitalise the Self Assessment (tax return) experience. It comes into effect on 6 April 2026, and will affect anyone who earns over £50,000 from property and/or self-employed income.
As a landlord, key changes to know are:
It’s really important to note that using HMRC-recognised tax software will be non-negotiable for anyone earning £50k+ from property and/or self-employed income. So getting signed up to something in time is essential.
Here’s a breakdown of Buy to Let property tax.
Stamp Duty Land Tax is usually the first type of letting property tax you’ll need to think about. It’s a one-off tax payment, made when you buy a property. The Stamp Duty Land Tax rates are different for Buy to Let properties than the rates for a main home.
| Buy to Let property purchase price | Buy to Let Stamp Duty Land Tax rate |
| £0 – £250,000 | 3% |
| £250,001 – £925,000 | 8% |
| £925,001 – £1.5million | 13% |
| Over £1.5million | 15% |
Here’s an example of Stamp Duty Land Tax rates in action:
Things are a bit different in Scotland – they have Land and Buildings Transaction Tax instead.
The profits you make from letting one or more properties is classed as income. So you need to pay income tax on it, unless:
To work out how much income tax you’ll pay, add your rental income profits to any other annual income you get – then check the current tax bands:
| Total income (after expenses) | Tax rate |
| Up to £12,570 | 0% – personal allowance |
| £12,571 – £50,270 | 20% – basic rate |
| £50,271 – £150,000 | 40% – higher rate |
| Over £150,000 | 45% – additional rate |
The income tax bands are slightly different in Scotland.
Here’s an example of income tax rates in action:
Head to this Government page for information about how to pay income tax.
You have to pay class 2 National Insurance on your rental income if:
HMRC says you’re running a property business if all of these rules apply:
You might need to pay capital gains tax (CGT) when you sell a property and make a profit. There are a few exceptions, though. You don’t pay CGT if:
If you do need to pay CGT, you’ll pay these rates:
| Type of taxpayer | CGT rate for total annual capital gains |
| Basic rate taxpayer (earns less than £50,270) | 18% |
| Higher rate taxpayer (earns more than £50,271) | 28% |
Here’s an example of CGT in action:
As a landlord, you’ll spend money on things like property maintenance, insurance, and advertising.
It’s important to add up all these costs and take them off your rental income when you file your taxes, so you don’t end up paying too much tax.
Some examples of allowable expenses for landlords are:
As a landlord, there are also some other tax relief areas to be aware of. Read about them in this quick guide to landlord tax relief.
Until 2020, landlords could deduct their mortgage interest payments from their rental income when filing their taxes. This made a huge difference to the amount of income they had to pay tax on. For example, if a landlord paid £10,000 in mortgage interest payments a year, they could remove this whole amount from their rental income, significantly lowering their tax bill.
But that’s all changed now. From 2017-2020 a new system was phased in that means landlords can now no longer remove their mortgage interest payments from their rental income. Instead, they can just claim a 20% rate tax credit on one of the below (whichever is lowest):
This means a lot of landlords are now paying more tax than they did a few years ago. And some are in a higher income tax bracket as a result, too.
Figuring out how much tax you’ll end up paying on Buy to Let property income can feel like a minefield. But it doesn’t have to be. Our platform, Hammock, was developed by landlords for landlords to take the stress out of property letting finances.
Our secure Open Banking technology means all your income and expenses are tracked in one place, so you don’t need to sift through tons of paperwork, bank accounts, and receipts. Plus, you get real-time insights about your Buy to Let investments, so you can:
Sound good?
Our guide is for educational purposes only, as we don’t provide tax advice. We always recommend consulting experts (in this case your accountant or tax advisor) when dealing with rules and regulations.
