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Buy-to-let tax guide

As a new or existing landlord it’s important to keep up to date on with the taxes that affect buy to let property owners so we’ve put together this handy guide.

Please note the below is intended as a general guide only and is not a substitute for professional advice to your own specific circumstances. Tax planning can be complex and is something that should be discussed with a qualified tax or financial adviser.
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Stamp duty

Stamp duty, or Stamp Duty Land Tax (“SDLT”) to give it its full name, is payable on buy-to-let properties.  It is payable on increasing portions of the property price.  

The rates below apply to those who are buying a second home that is not their main residence e.g. a buy to let property, holiday home, parents purchasing a property for their children.

The rates of stamp duty land tax on a second home purchase from April 2016 are:

  • 3% tax on the first £125,000
  • 5% from £125,000 to £250,000
  • 8% from £250,000 to £925,000
  • 13% from £925,000 to £1,500,000
  • 15% on everything over that


Reductions in the rate of stamp duty land tax were announced in the November 2017 Budget.  These only apply to first time buyers who are buying a property with a value of £500,000 or less on or after 22 November 2017, which is to be used as their main residence, not first time buyers who are buying a buy to let property.

The table below shows the current SDLT rates for all types of purchasers.

Band (increasing portions
of property price)
SDLT rate:-
- 1st time buyer of main residence with property value of £500k or less*1
SDLT rate:-
- buying 2nd home as main
residence - 1st time buyer with property value of >£500k
- buy to let 1st time buyer
SDLT rate:-
- buying any second home
not main residence
£0* - £125k 0% 0% 3%
£125k - £250k 0% 2% 5%
£250k - £300k 0% 5% 8%
£300k - £500k 5% 5% 8%
£500k - £925k N/A*2 5% 8%
£925k - £1.5m N/A*2 10% 13%
£1.5m + N/A*2 12% 15%

*1 On purchases on or after 22 Nov
*2 Reduced SDLT rate not available for 1st time purchases over £500k.

Stamp duty has to be paid within 30 days of the completion of the purchase of a property although in most cases your solicitor will pay it on the day of completion.

Capital gains tax

If you sell a buy to let property for more than you paid for it, after deducting costs such as stamp duty, and solicitors and estate agents fees, then you will have to pay capital gains tax.

Each person has an annual allowance of £11,300 that you can set against any gain which is separate from your income tax allowance. If the gain is greater than your £11,300 allowance, you will pay tax at a rate of either 18% or 28% on the profit depending on the amount of income and capital gains you have.

Like income tax, any capital gain must be declared on your Self-Assessment tax return.  From April 2019 buy to let landlords will need to physically pay the capital gains tax within 30 days of selling the property.  Currently the payment of the capital gains tax is due with your Self-Assessment tax return.

Income tax

The income you receive as rent is taxable and you need to declare any rent you receive on your Self-Assessment tax return. The tax on your income is charged in accordance with your income tax band – 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate tax payers.

When landlords pay tax on their rental profits, they can generally deduct certain expenses before arriving at the figure on which tax is payable.

Allowable expenses currently include:

  • Interest on buy-to-let mortgages and other finance charges*
  • Council tax, insurance, ground rent
  • Property repairs and maintenance
  • Legal and other professional fees such as those paid to a letting agent


*Changes announced in the 2015 Summer Budget were made relating to the treatment of income tax to buy to let investors, and from April 2017 the deduction of mortgage interest will gradually be replaced with a tax relief allowance that will partly offset the tax calculated on rental income.

To give landlords time to adjust, the amount of tax relief that applies will be phased in over four years from April 2017 as follows:

2017/18 – the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.

2018/19 – 50% finance costs deduction and 50% available as a basic rate tax reduction.

2019/20 – 25% finance costs deduction and 75% available as a basic rate tax reduction.

2020/21 – all finance costs incurred by a landlord will be available as a basic rate tax deduction.

The changes will mostly affect higher and additional rate taxpayers, as the rate of relief is effectively reduced on interest costs from their marginal rate to the basic rate (currently 20%).

It is also possible that a basic rate taxpayer could find him or herself nudged into a higher rate band as a result of these changes and the way income is calculated before any deduction of mortgage interest.

How might this look?

A buy to let property is bought for £300,000

A £240,000 mortgage is taken out on the property

Mortgage interest is assumed at 4.5% - annual mortgage interest is £10,800

.e rental yield is 5% - annual rent is £15,000

For a basic rate taxpayer

  2016-17 2017-18 2018-19 2019-20 2020 onwards
Annual rental income 15,000 15,000 15,000 15,000 15,000
Mortgage interest payable (10,800) (10,800) (10,800) (10,800) (10,800)
Reduction in mortgage interest allowance*   2,700 5,400 8,100 10,800
Total rental income on which tax is payable 4,200 6,900 9,600 12,300 15,000
Tax at 20% 840 1,380 1,920 2,460 3,000
Tax at basic relief - 20% of the reduction in mortgage interest allowance   (540) (1,080) (1,620) (2,160)
Total tax payable 840 840 840 840 840


For a higher rate taxpayer

  2016-17 2017-18 2018-19 2019-20 2020 onwards
Annual rental income 15,000 15,000 15,000 15,000 15,000
Mortgage interest payable (10,800) (10,800) (10,800) (10,800) (10,800)
Reduction in mortgage interest allowance*   2,700 5,400 8,100 10,800
Total rental income on which tax is payable 4,200 6,900 9,600 12,300 15,000
Tax at 40% 1,680 2,760 3,840 4,920 6,000
Tax at basic relief - 20% of the reduction in mortgage interest allowance   (540) (1,080) (1,620) (2,160)
Total tax payable 1,680 2,220 2,760 3,330 3,840

These income tax changes do not apply to limited companies so some buy to let investors may want to consider restructuring their portfolio into a limited company.  However, you should always take professional advice before making a decision.

Inheritance tax

Inheritance tax

Inheritance tax is payable on buy to let properties but the amount that is paid depends on your circumstances.

If you’re an individual landlord with an estate entirely owned by you, then you’re liable to inheritance tax if your property value less any outstanding mortgage amounts, or if the combined value of your estate, exceeds £325,000.

If you are running your buy to let business with a married or civil partner, then you each have a threshold of £325,000 so at the threshold increases to £650,000. The value of your estate over these amounts is taxed at 40%.

Please note the above is intended as a general guide only and is not a substitute for professional advice to your own specific circumstances. Tax planning can be complex and is something that should be discussed with a qualified tax or financial advisor.

For more information about the tax you need to pay when renting out a property please visit gov.uk

If you'd like to get the ball rolling or have any questions, give us a call on 0333 3211000.

IF YOU FAIL TO KEEP UP WITH PAYMENTS ON YOUR MORTGAGE A "RECEIVER OF RENT" MAY BE APPOINTED AND/OR YOUR RENTAL PROPERTY MAY BE REPOSSESSED

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