How buy-to-let profits are taxed
Who this guide is for: For individual landlords who want the overview of Income Tax on rent, finance-cost rules and what happens on sale — without duplicating Rental Income Tax Explained or Capital Gains Tax on Property.
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.
- Step 1Rents and receipts
- Step 2Allowable expenses (typical if claiming finance-cost relief)
- Step 3Finance-cost tax reducer
- Step 4Income Tax on profit
- Step 5Capital Gains Tax if you sell
Finance cost restriction
Residential landlords generally cannot deduct all mortgage interest as an expense. Instead, a basic-rate reduction mechanism applies to qualifying finance costs.
Allowances and structure
- Property allowance may be simpler than expenses for very small income, but you generally cannot use it if you claim the residential finance-cost tax reducer — 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 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