This guide is for information purposes only. As a mortgage broker, we’re not able to offer tax advice.
Note: the Financial Conduct Authority does not regulate some forms of buy-to-let mortgages.
Buy-to-let tax rules have shifted considerably over the past decade, and more changes are on the way. This guide covers how mortgage interest relief, expense deductions, Private Residence Relief, Stamp Duty, Corporation Tax, and rental income tax have all changed for landlords, so you know where things currently stand.
How Has Tax Relief on Buy-to-Let Mortgage Interest Changed?
Before April 2017, landlords could deduct the full amount of their buy-to-let mortgage interest from rental income before working out taxable profit, which reduced both the tax owed and, in some cases, kept landlords in a lower tax bracket.
Between April 2017 and April 2020, this relief was phased out gradually and replaced with a new system.
Since April 2020, mortgage interest can no longer be deducted from rental income when calculating taxable profit. Instead, landlords receive a tax credit worth 20 percent of their mortgage interest payments, applied directly against their final tax bill rather than against taxable income.
When Was the Old System Abolished?
The previous full-deduction system was completely phased out by April 2020, following a four-year transition period that began in April 2017.
What Does the Current Relief Look Like?
Buy-to-let mortgage tax relief today takes the form of a 20 percent tax credit, calculated on your mortgage interest payments and subtracted from your overall tax bill, rather than deducted from taxable rental profit as it once was.
What Has This Meant for Landlords?
The change has had two main effects:
- Higher rate taxpayers can claim less relief overall – previously they could deduct the full interest amount, whereas now they only receive the flat 20 percent credit
- Mortgage interest no longer helps reduce your tax bracket – since interest can’t be deducted from taxable profit anymore, some landlords who previously stayed in a lower bracket because of this deduction no longer benefit in the same way
Can You Still Deduct Other Expenses from Rental Income?
Yes, certain allowable expenses remain deductible under the Replacement of Domestic Items Relief, which reduces Income Tax owed on rental income.
This relief replaced the old Wear and Tear Allowance from 1 April 2016. Previously, landlords of fully furnished properties could claim a flat annual deduction equal to 10 percent of rental income, regardless of what was actually spent.
What Can You Claim For Now?
Under the Replacement of Domestic Items Relief, you can only claim the actual cost of replacing furnishings, not a flat percentage.
Deductible items include moveable furniture, such as:
- Televisions
- Carpets
- Curtains
- Fridges
- Crockery
Fitted items such as kitchen units, baths, and boilers are usually treated differently – they can still count as allowable expenses, but only if you’re replacing or repairing them like-for-like. If you upgrade or improve them beyond their original standard, that spend counts as an improvement rather than a repair and isn’t deductible in the same way.
Can Landlords Still Claim Private Residence Relief?
Private Residence Relief removes the Capital Gains Tax due when you sell your main home. Since a buy-to-let is rarely your main residence throughout ownership, landlords selling a rental property usually do pay CGT on the sale.
That said, if a property you’re selling was your main residence at some point, you can still claim relief for that period. This covers:
- The time you genuinely lived in the property as your main home
- The final 9 months of ownership, regardless of whether the property was rented out during that time
Any period beyond this final 9 months, where the property wasn’t your main residence, is subject to CGT.
This 9 month final period used to be 18 months, but was reduced to 9 months from April 2020.
Can Landlords Still Claim Letting Relief?
Letting Relief can significantly reduce the Capital Gains Tax owed on selling a buy-to-let, with up to £40,000 available tax-free.
To qualify under the current rules, you must be sharing occupancy of the property with your tenants at the relevant time – this relief is no longer available simply because you once lived in the property and later let it out separately.
Stamp Duty Changes for Buy-to-Let
From 23 September 2022, the point at which Stamp Duty starts being charged was raised to £250,000, including for buy-to-let and second home purchases. This threshold was due to remain in place until March 2025.
SDLT rates for buy-to-let properties (from 1 April 2025):
| Property Value | SDLT Rate |
|---|---|
| Up to £125,000 | 5% |
| £125,001 – £250,000 | 7% |
| £250,001 – £925,000 | 10% |
| £925,001 – £1,500,000 | 15% |
| From £1,500,000 | 17% |
Both the standard rate and the additional buy-to-let/second home rate apply together when buying an additional property.
No changes to buy-to-let Stamp Duty were announced in the November 2025 Budget.
Let to Buy
If you move out of your main residence without selling it and buy another property to live in, you’ll pay the 5 percent Stamp Duty surcharge, as has applied since 31 October 2024. If you go on to sell your original home within 36 months of completing the new purchase, you can claim a full refund of the surcharge paid.
Granny Annexes
If a property you’re buying includes a granny annexe, you’re unlikely to face the extra 5 percent surcharge on that annexe. The higher rate would only apply to the annexe itself if it:
- Could be sold separately from the main house
- Has its own entrance
- Has its own water and electricity supplies
- Is worth more than £40,000 on its own
- Receives its own Council Tax bill
Buy-to-Let Tax on Rental Income Is Changing
The November 2025 Budget announced that from April 2027, rental income will be taxed at rates slightly above standard Income Tax rates.
| Income Tax Band | Taxable Income 2025/26 | Income Tax Rate 2025/26 | Property Income Tax Rate 2027/28 |
|---|---|---|---|
| Personal allowance | Up to £12,570 | 0% | 0% |
| Basic rate | £12,571 – £50,270 | 20% | 22% |
| Higher rate | £50,271 – £125,140 | 40% | 42% |
| Additional rate | Above £125,140 | 45% | 47% |
Has Corporation Tax Changed for Limited Company Buy-to-Lets?
If you hold rental property through a limited company, you pay Corporation Tax on the rental profits instead of Income Tax.
Following the November 2025 Budget, Corporation Tax rates are set to remain unchanged for 2026/27 compared to 2025/26.
Recent History of Corporation Tax Rates
From 1 April 2015 to 31 March 2023, Corporation Tax sat at a flat rate of 19 percent regardless of profit level.
Since 1 April 2023, the rate depends on how much profit the company makes over the accounting period:
- Profits above £250,000 are taxed at the main rate of 25 percent
- Profits of £50,000 or less are taxed at the small profits rate of 19 percent
- Profits between £50,001 and £250,000 may qualify for Marginal Relief, which tapers the effective rate gradually between 19 and 25 percent
What Happens If You Don’t Comply with Buy-to-Let Tax Rules?
Non-compliance carries real financial risk. Penalties for underpaying tax on rental income can reach up to 100 percent of your total rental income, and HMRC can also issue separate penalties for failing to notify them of income or for submitting inaccurate returns.
These penalties can eat into rental income significantly enough to affect your ability to keep up mortgage payments. Non-compliance can also complicate a future sale of the property, since unresolved tax issues can attach unwanted complications to the transaction.
How to Stay Compliant
Tax rules for landlords change frequently, and getting it right without professional advice can be difficult. It’s generally best to consult an accountant or tax adviser, but in the meantime, you can:
- Familiarise yourself with available deductions, such as the Replacement of Domestic Items Relief
- Keep clear, accurate records of rental income and retain all relevant documentation in case of an audit
- Stay up to date with HMRC announcements and note any relevant tax return deadlines