Buy-to-Let Tax Guide — Rental Income, Mortgage Relief & How to Reduce Your Tax Bill

Buy-to-let property can be an excellent investment, but the tax rules for landlords are complex and have changed significantly in recent years. Understanding your obligations — and the reliefs available — is essential to managing your tax bill effectively.

Do I need to declare rental income?

Yes. All rental income must be declared to HMRC via a Self Assessment tax return. There is a £1,000 property allowance — if your total rental income is below this, you don't need to declare it. Above £1,000, you must register for Self Assessment and declare the income each year.

How is rental income taxed?

Rental income is added to your other income (salary, self-employment etc.) and taxed at your marginal rate of Income Tax:

• Basic rate (20%) — on income between £12,571 and £50,270
• Higher rate (40%) — on income between £50,271 and £125,140
• Additional rate (45%) — on income above £125,140

Mortgage interest relief — how does it work now?

This is one of the most significant changes for landlords in recent years. Prior to 2017, you could deduct all mortgage interest from your rental income before calculating tax. This has been phased out and replaced with a 20% tax credit on mortgage interest payments.

What this means in practice: if you pay £5,000 in mortgage interest per year, you receive a £1,000 tax credit (20% of £5,000) regardless of your tax rate. Higher rate taxpayers who previously deducted mortgage interest at 40% have seen their tax bills increase significantly as a result of this change.

This is why tax planning for landlords is so important — the difference between being in the basic rate band versus the higher rate band can have a significant impact on your rental income tax bill.

What expenses can I deduct as a landlord?

You can deduct allowable expenses from your rental income before calculating your tax. These include:

• Mortgage interest — via the 20% tax credit (as above)
• Letting agent fees — management fees, tenant finding fees
• Repairs and maintenance — fixing things that are broken (not improvements)
• Insurance — buildings insurance, landlord liability insurance, rent guarantee insurance
• Ground rent and service charges — for leasehold properties
• Council tax — if paid by you during void periods
• Utilities — gas, electricity, water if included in the rent
• Accountancy fees — the cost of your accountant preparing your landlord tax return
• Travel — mileage to visit your rental property
• Stationery and phone — costs related to managing the property

What about property improvements?

Improvements (capital expenditure) — such as adding an extension or converting a loft — cannot be deducted as a revenue expense. However, they may qualify for Capital Gains Tax relief when you eventually sell the property, as they reduce your gain.

Capital Gains Tax on property

When you sell a buy-to-let property, you pay Capital Gains Tax (CGT) on the profit. The CGT rates for property in 2026/27 are:

• 18% for basic rate taxpayers
• 24% for higher and additional rate taxpayers

You can reduce your CGT bill by deducting the original purchase price, buying costs (stamp duty, legal fees), selling costs and the cost of any capital improvements.

How to reduce your tax bill as a landlord

• Claim all allowable expenses — many landlords miss deductions they are entitled to
• Consider whether incorporating your property portfolio makes sense (seek advice first)
• Make pension contributions to reduce your taxable income
• Consider joint ownership with a spouse or partner to use both personal allowances
• Keep thorough records of all income and expenditure throughout the year

How Fernside Accounting can help landlords

We specialise in landlord tax returns and property income across Woodford Green, Chigwell, Loughton, South Woodford, Snaresbrook, Gants Hill, Chingford, Epping, City of London, Wanstead. We ensure you claim every allowable expense, make the most of available reliefs and pay exactly the right amount of tax — no more, no less. Book a free 20-min call for landlord tax advice.