Buy to Let Tax Explained

How individual landlords are taxed on rental profits, finance costs and sales.

Reviewed against official HMRC guidance

Tax year
2026/27
Last reviewed
August 2026
Reading time
7 min

How buy-to-let profits are taxed

Who this guide is for: For individual landlords who want an overview of Income Tax on rent, mortgage interest rules and what happens when you sell.

As an individual landlord, you usually pay Income Tax on rental profits: rents and other property income minus allowable property expenses (and after any property allowance claim).

Profits are added to your other income and taxed at your marginal rates. For how to work out those profits in more detail, see Rental Income Tax Explained.

  1. Step 1Rents and receipts
  2. Step 2Allowable expenses (excluding restricted mortgage interest)
  3. Step 3Mortgage interest restriction (basic-rate tax reduction)
  4. Step 4Income Tax on profit
  5. Step 5Capital Gains Tax (CGT) if you sell
Buy-to-let tax spans income while you let and capital gains when you sell. The property allowance is usually unavailable if you claim basic-rate relief on mortgage interest.

Mortgage interest restriction

Residential landlords generally cannot deduct all mortgage interest from rental profits. Instead, qualifying finance costs receive a basic-rate tax reduction — sometimes called the finance-cost tax reducer on GOV.UK.

Allowances and structure

  • Property allowance may be simpler than expenses for very small income, but you generally cannot use it if you claim basic-rate relief on mortgage interest — see Rental Income Tax Explained.
  • Limited company ownership has different Corporation Tax and extraction rules — not the same as personal property income. See Corporation Tax Explained.
  • Capital improvements are usually not deductible against rent (they may affect Capital Gains Tax base cost later).

When you sell

Disposing of a buy-to-let can create a Capital Gains Tax bill after costs and any Annual Exempt Amount. Private Residence Relief usually does not cover a pure investment let. Detail lives in Capital Gains Tax on Property.

Buying another property can also involve higher rates of Stamp Duty — see Stamp Duty on Second Homes and Additional Properties and the overview in Stamp Duty Explained (or the Scottish/Welsh equivalent). Browse the full property tax hub for Stamp Duty, rentals and property Capital Gains Tax together.

See how higher rates affect an additional-property purchase Use the Stamp Duty Calculator

Frequently asked questions

Is buy-to-let taxed like a sole trader business?

Rental profits are usually taxed as property income, not trading income. Different expense and allowance rules apply — including restrictions on finance costs for many residential lettings.

Can I deduct all mortgage interest?

For most individual landlords of residential property, finance costs are restricted: you generally receive a basic-rate tax reduction rather than a full profit deduction. Check GOV.UK for the current mechanism.

Do I need Self Assessment?

Most landlords report property income on a Self Assessment return. You may also fall into Making Tax Digital for Income Tax if your qualifying income is above the phased thresholds.

What about selling the property?

Sale of an investment property can trigger Capital Gains Tax — see the Capital Gains Tax on Property guide. That is separate from Income Tax on rent.

Official sources

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This guide is for general information only. It is not tax, legal or financial advice. Always check the official guidance for your situation.