All buy to let landlords have to pay tax on the amount of income they receive from tenants who are renting out their properties.
Certain expenses can be offset against this figure, such as landlord insurance, letting agent’s fees, accountant’s fees, service management costs (if it’s an apartment) and software costs. Any losses incurred from previous years can also reduce the current tax bill.
Until a few years ago, it was possible for landlords to claim back their full mortgage interest costs, but this has since been phased out. As of 2025, landlords can no longer deduct mortgage interest from rental income. Instead, all landlords receive a fixed tax credit of 20 per cent of their mortgage interest payments (whereas additional rate taxpayers previously claimed 45 per cent and higher rate taxpayers 40 per cent).
This works out worse for landlords in two ways:
▪ They can’t claim as much against mortgage interest as before
▪ They have to declare how much of the rent is being paid against the mortgage
In the case of (b) this makes the declared tax figure higher, which in turn could potentially push a standard tax-paying landlord into an additional rate payer and the latter into a higher tax payer.
One way to mitigate this is by operating as a limited company. A landlord would then pay corporation tax—currently 25% in 2025. However, switching from personal to corporate ownership requires selling the properties to the company, which may trigger Capital Gains Tax and could be financially disadvantageous.
Tax rates for landlords
The amount of tax a landlord will pay depends on which income bracket he or she is in i.e. 20 per cent, 40 per cent or 45 per cent. An additional rate tax payer who, with profits from property goes above the threshold of £40,000 a year, will pay the higher rate of 45 per cent on the excess i.e. if his or her total income is £55,000 then £40,000 will be taxed at 40 per cent and £15,000 at 45 per cent.
Paying tax on more than one buy to let property
It’s possible to add up the income from several (or more) properties and reduce expenses from the total figure, regardless of which property relief is being claimed for. That is unless a property is located overseas – in which case it will be subject to a separate tax entry.
Sending off a tax return
The UK tax year runs from 6 April to 5 April the following year. Landlords paying personal income tax must file online by 31 January, or submit paper returns by 31 October. New landlords must notify HMRC by 5 October of any new rental income, and also if they sell a property—at which point Capital Gains Tax may apply.
As of 2025:
▪ Capital Gains Tax for residential property is 18% for basic rate taxpayers
▪ 24% for higher and additional rate taxpayers
CGT is due within 60 days of completing the sale.
Author
Chris Kirkwood
