A guide to Buy to Let property tax

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.

buy to let property tax

How Buy to Let property taxes work

When you buy a property to let, there are a few different types of tax to pay. These include:

  • Stamp duty tax (when you first buy the property)
  • Income tax and National Insurance contributions (on the rental income you get from the property)
  • Capital gains tax (when you sell the property)

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.

Making Tax Digital (MTD) – what’s changing?

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:

  • You’ll need to keep digital records of all anything relevant to paying tax (like your rental income and expenses)
  • You’ll need to use a software that works with MTD (like Hammock 😌)
  • You’ll need to submit updates every quarter instead of just doing a single Self Assessment each year 
  • You’ll need to submit End of Period Statements (EOPS) once a year for each type of income you have (so, one for rental income, and one for self-employed income, for example)

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. 

Taxes you’ll pay on Buy to Let properties 

Here’s a breakdown of Buy to Let property tax.

Stamp Duty 

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 priceBuy to Let Stamp Duty Land Tax rate
£0 – £250,0003%
£250,001 – £925,0008%
£925,001 – £1.5million13%
Over £1.5million15%

Here’s an example of Stamp Duty Land Tax rates in action:

  • David buys a property to let for £400,000
  • He pays 3% Stamp Duty on the first £250,000 
  • He pays 8% Stamp Duty on £149,999 (the amount between £250,001 – £400,000)
  • The total Stamp Duty land tax David pays is £19,499.92

Things are a bit different in Scotland – they have Land and Buildings Transaction Tax instead.

Income tax

The profits you make from letting one or more properties is classed as income. So you need to pay income tax on it, unless:

  • You make less than £1,000 in profit from rental income a year
  • You make less than £12,570 total income a year (from any source)

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 £12,5700% – personal allowance
£12,571 – £50,27020% – basic rate
£50,271 – £150,00040% – higher rate
Over £150,00045% – additional rate

The income tax bands are slightly different in Scotland.

Here’s an example of income tax rates in action:

  • Louise earns a total of £60,000 a year from rental income and her work as a freelance photographer
  • She pays 0% income tax on the first £12,570
  • She pays 20% income tax on £37,699 (her earnings between £12,571-£50,270) 
  • She pays 40% income tax on £9729 (her earnings between £50,270-£60,000)
  • The total income tax she pays is £11,431.40

Head to this Government page for information about how to pay income tax. 

National Insurance

You have to pay class 2 National Insurance on your rental income if:

  • your profits are more than £11,908 a year and
  • you run a “property business” in the eyes of HMRC.

HMRC says you’re running a property business if all of these rules apply:

  • Renting out properties is your main job
  • You rent out more than one property
  • You buy new properties to rent out

Capital gains tax

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:

  • You make less than £12,300 in capital gains in a year (from any source)
  • You make a profit when you sell your main home 

If you do need to pay CGT, you’ll pay these rates:

Type of taxpayerCGT 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:

  • Sarah bought a property to let 10 years ago for £200,000
  • She sold it today for £300,000
  • Once her CGT tax free allowance has been removed (£12,300) the capital gain Sarah makes is £87,700
  • This is the only capital gain Sarah’s going to make this year
  • Sarah’s a basic rate taxpayer, so she pays CGT at a rate of 18% (£15,786) 

Tax relief and expenses for Buy to Let properties

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:

  • Bills – for example, water rates, gas and electricity, council tax
  • Insurance – for example, landlord insurance
  • Letting agents’ fees
  • Accountancy fees
  • The cost of any services included in the rental agreement – for example, gardening and cleaning
  • The cost of finding new tenants – for example, advertising and stationery costs
  • General maintenance costs including ongoing repairs

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.

What about mortgage interest 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):

  • Finance costs (including mortgage interest payments, loan repayments, and overdrafts)
  • Profit from rental income
  • Total income 

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.

How Hammock can help you 

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:

  • Easily view profit and loss statements for each property
  • Track how the valuations of your properties evolve over time with live loan-to-value calculations
  • Compare the performance of different properties and get actionable insights with our rental yield calculator 

Sound good?

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