Buy-to-Let Guide UK 2025: Is It Still Worth It?
Buy-to-let has undergone a dramatic transformation since 2016. Once one of the most accessible and tax-efficient investment strategies available to UK private investors, successive changes to Stamp Duty, mortgage interest relief (Section 24), Capital Gains Tax, EPC requirements, and landlord licensing have fundamentally altered the economics. Many landlords have sold up; others have restructured into limited companies. But for the right buyer, in the right location, with the right financial structure, buy-to-let can still deliver compelling long-term returns.
This guide gives you the complete picture for 2025: mortgage requirements, the true tax position for individuals and limited companies, all allowable expenses, CGT on exit, and an honest assessment of whether the numbers still work.
Extra tax a higher-rate taxpayer now pays under Section 24 vs the pre-2017 rules on a typical rental property with £800/month mortgage interest
Buy-to-Let Mortgage Requirements
Deposit Requirements
The minimum deposit for a buy-to-let mortgage is typically 25% of the purchase price, making a BTL purchase significantly more capital-intensive than a residential purchase (where 5%–10% is achievable). Some specialist lenders will accept 20%, but rates at this LTV are considerably higher. A deposit of 35%–40% unlocks the best available rates and widest lender choice.
Unlike residential mortgages, no government schemes assist BTL deposits. And remember: the 5% SDLT surcharge on additional properties (from October 2024) must also be funded. On a £250,000 BTL purchase, that is £12,500 in SDLT alone, plus £62,500 deposit at 25%, plus legal and other costs — requiring approximately £80,000 in cash before you begin.
Rental Income Stress Test (ICR)
Buy-to-let lenders assess affordability primarily through the Interest Coverage Ratio (ICR) rather than personal income. The lender calculates the monthly mortgage interest at a notional stress rate (typically 5.5%–7%, regardless of the actual rate being offered) and requires the monthly rent to exceed that figure by a set margin:
- Basic rate taxpayers: Rent must be at least 125% of the mortgage payment at the stress rate
- Higher and additional rate taxpayers: Rent must be at least 145% of the mortgage payment at the stress rate (because the Section 24 restriction hits them harder)
Example: You want to borrow £150,000 at 5.0% for a BTL property. The monthly interest is £625. At the 145% ICR for a higher rate taxpayer, the minimum required rent is £906/month. At 125% for a basic rate taxpayer it is £781/month. If the achievable rent is below this threshold, the lender will not approve the loan at that borrowing level.
The Section 24 Tax Change: How It Works in Practice
Section 24 of the Finance Act 2015, fully implemented from April 2020, is the single most consequential change to UK landlord taxation in a generation. It removed the ability for individual landlords to deduct mortgage interest from rental income before calculating income tax. Instead, landlords receive a 20% basic rate tax credit on finance costs.
Before Section 24 (Pre-2017 Rules)
Monthly rent: £1,500 | Annual rent: £18,000
Annual mortgage interest: £9,600 (£800/month)
Annual allowable expenses (other): £2,000
Taxable profit: £18,000 − £9,600 − £2,000 = £6,400
Tax at 40% (higher rate): £2,560
After Section 24 (Current Rules for Individual Landlords)
Monthly rent: £1,500 | Annual rent: £18,000
Annual allowable expenses (other): £2,000
Taxable income: £18,000 − £2,000 = £16,000
Tax at 40% (higher rate): £6,400
Less: 20% credit on finance costs (£9,600 × 20%): −£1,920
Net tax bill: £4,480
Extra tax vs old rules: £1,920/year = £160/month
Stamp Duty Surcharge on Additional Properties
Since April 2016 a surcharge has applied to the purchase of additional residential properties. From October 2024, this surcharge increased to 5% and applies across the full purchase price (unlike standard SDLT which is tiered).
| Purchase Price | Standard SDLT | BTL / Second Home SDLT (2025) | Extra Cost |
|---|---|---|---|
| £150,000 | £500 | £8,000 | £7,500 |
| £200,000 | £1,500 | £11,500 | £10,000 |
| £250,000 | £2,500 | £15,000 | £12,500 |
| £350,000 | £7,500 | £25,000 | £17,500 |
| £500,000 | £12,500 | £37,500 | £25,000 |
Allowable Expenses: What Landlords Can Deduct
Despite the Section 24 restriction on mortgage interest, individual landlords can still deduct a wide range of genuine property expenses from rental income before calculating their taxable profit. These are sometimes called "revenue expenses":
- Letting agent fees: Full management fees (typically 8–15% of rent) and tenant-finding fees are fully deductible.
- Repairs and maintenance: Cost of repairs that restore the property to its original condition (not improvements). Fixing a broken boiler, replastering a damp wall, replacing like-for-like windows.
- Buildings and contents insurance: The full annual premium for landlord-specific insurance.
- Service charges and ground rent: For leasehold properties, these ongoing charges are deductible.
- Accountancy fees: The proportion of accountancy costs directly attributable to the rental business.
- Advertising and letting costs: Rightmove listings, inventory costs, credit checking fees.
- Council tax and utilities during voids: Any council tax, gas, electric or water bills you pay during periods when the property is empty between tenancies.
- Mortgage arrangement fees: Deductible as a finance cost (subject to Section 24 restriction if individual), or spread over the term of the mortgage.
- Travel to inspect the property: Mileage at HMRC approved rates if visiting for a genuine business purpose such as an inspection or handling repairs.
Capital Gains Tax on Selling a Buy-to-Let Property
When you sell a buy-to-let property, you pay Capital Gains Tax on the profit. The key facts for 2025:
- CGT rates on residential property: 18% for basic rate taxpayers; 24% for higher and additional rate taxpayers (rates effective from October 2024). Note that the gain is added to your income for the tax year — if the gain pushes you into the higher rate band, the portion above the threshold is taxed at 24%.
- Annual exempt amount: £3,000 (2024/25 and 2025/26). This can be used to shelter the first £3,000 of gain each year.
- Principal Private Residence (PPR) relief: Not available for buy-to-let properties unless you have lived in the property yourself at some point (in which case partial relief applies for the period of residence plus the final 9 months of ownership).
- Allowable deductions from the gain: Purchase price, SDLT paid on purchase, legal and estate agent fees at purchase and sale, capital improvement costs (extensions, conversions, not repairs).
- Reporting and payment deadline: CGT on residential property must be reported to HMRC and paid within 60 days of completion of the sale via the UK Property Reporting Service.
| Scenario | Example |
|---|---|
| Purchase price + costs | £220,000 |
| Sale price | £320,000 |
| Gross gain | £100,000 |
| Less: sale costs (agent 1.5%, solicitor) | −£5,800 |
| Less: capital improvements | −£15,000 |
| Less: annual exempt amount | −£3,000 |
| Taxable gain | £76,200 |
| CGT at 24% (higher rate) | £18,288 |
| CGT at 18% (basic rate) | £13,716 |
EPC Requirements and Licensing
Energy Performance Certificate (EPC): Rental properties in England must currently hold an EPC rating of E or above. The government has proposed requiring a minimum of C for all new tenancies by 2028, though implementation has been repeatedly delayed. Landlords should plan for potential improvement costs if their property falls below C, particularly for older properties that may require significant insulation and heating upgrades.
Property licensing: Two main licensing schemes affect landlords:
- HMO (Houses in Multiple Occupation) mandatory licensing: Required for all properties rented to 5 or more people from 2 or more households who share facilities. Failure to obtain a licence is a criminal offence and can result in an unlimited fine.
- Selective licensing: Some local authorities have introduced selective licensing schemes requiring all private landlords in designated areas to obtain a licence, regardless of property size. Check your local council's requirements before purchasing.
Limited Company Buy-to-Let: The Tax Advantage
Operating BTL through a limited company avoids Section 24 entirely, since companies can deduct finance costs in full as a business expense. Profits are subject to corporation tax rather than income tax. From April 2023, the main corporation tax rate is 25% on profits above £50,000 (19% on profits below £50,000 via the small profits rate).
Limited Company BTL Advantages
- Full mortgage interest deduction (no Section 24)
- Corporation tax (19–25%) vs income tax (40–45%)
- Profits can be retained and reinvested without personal income tax
- Better for building a portfolio over time
- Potential for BADR on disposal (10% CGT)
Limited Company BTL Disadvantages
- BTL mortgage rates 0.5–1% higher than personal rates
- Fewer lenders available for limited companies
- Additional accountancy costs (£500–£1,500/year)
- Extracting profits triggers personal tax (dividend or salary)
- Transfer of existing properties triggers CGT and SDLT
The limited company structure is most beneficial for landlords who are higher rate taxpayers, who plan to retain profits within the company and reinvest into additional properties, or who are building a portfolio from scratch (rather than transferring existing properties). Always seek advice from a specialist property tax accountant before choosing your structure.
Is Buy-to-Let Still Worth It in 2025?
A realistic ROI calculation on a typical 2025 BTL property:
| Item | Value |
|---|---|
| Purchase price | £220,000 |
| Deposit (25%) | £55,000 |
| SDLT (5% surcharge + standard) | £12,500 |
| Legal & other costs | £2,500 |
| Total cash invested | £70,000 |
| Monthly rent (5.5% gross yield) | £1,008 |
| Annual gross rent | £12,096 |
| Less: mortgage interest (£165k at 5%) | −£8,250 |
| Less: agent fees & expenses (20%) | −£2,419 |
| Pre-tax net income | £1,427 |
| Tax (higher rate, Section 24) | −£2,800 approx |
| After-tax cash flow | Negative |
| Net of capital growth (3%/year) | £6,600/year untaxed gain |
This illustrates why higher-rate taxpaying individual landlords often find the monthly cash flow negative under Section 24. However, the capital growth element — which is not taxed until sale — can still make the total return positive over a 5–10 year horizon, particularly in areas with above-average capital growth prospects.
For a basic rate taxpayer or a limited company landlord, the picture is materially different. With the full mortgage interest deduction available, the same property generates a meaningful positive cash flow, and the total return case is considerably stronger.
Frequently Asked Questions
Most buy-to-let mortgage lenders require a minimum deposit of 25% of the property's purchase price, though some specialist lenders will accept 20%. A larger deposit of 30–40% gives access to significantly better rates and a wider range of lenders. Unlike residential mortgages, no government scheme assists with BTL deposits, and the 5% SDLT surcharge on additional properties must also be funded in cash.
Section 24 of the Finance Act 2015, fully effective from April 2020, removed the ability for individual landlords to deduct mortgage interest from rental income before calculating tax. Instead, landlords receive a 20% basic rate tax credit on mortgage interest payments. This disproportionately affects higher and additional rate taxpayers, who previously deducted interest at 40–45% but now receive only 20% relief, significantly increasing their effective tax bill on rental income.
Since April 2016, a surcharge has applied to all additional residential property purchases. From October 2024 this increased to 5% on top of standard SDLT rates across the full purchase price. On a £250,000 property, a BTL investor pays approximately £15,000 in SDLT compared with £2,500 for a standard residential purchaser. This entry cost significantly affects the ROI calculation, especially for lower-value properties.
Landlords can deduct genuine allowable expenses including: letting agent fees, property maintenance and repairs (not improvements), buildings and contents insurance, service charges and ground rent, accountancy fees, advertising costs, council tax and utilities during void periods, and direct management costs. Capital improvements are not deductible against income but may reduce CGT liability on eventual sale.
Gains on residential property sales are taxed at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers (rates from October 2024). The annual CGT exempt amount is £3,000. Principal Private Residence relief is not available for buy-to-let properties. CGT on residential property must be reported and paid to HMRC within 60 days of completion of the sale.
Operating a buy-to-let through a limited company allows full mortgage interest deduction (Section 24 does not apply to companies) and profits are subject to corporation tax (19–25%) rather than income tax (40–45%). This can be significantly advantageous for higher rate taxpayers, especially those building a portfolio. However, limited company BTL mortgages carry higher rates, there are additional accountancy costs, and extracting profits triggers personal tax. Always seek specialist accountancy advice before choosing your structure.
Buy-to-let lenders assess affordability through the Interest Coverage Ratio (ICR). They calculate the monthly mortgage interest at a notional stress rate (typically 5.5%–7%) and require rent to exceed that by a margin: 125% for basic rate taxpayers and 145% for higher rate taxpayers. For example, if the stress-rate interest is £800/month, the lender requires rent of £1,160/month (145%) for a higher rate taxpayer to approve the loan.