Buy-to-let

Buy-to-let is the practice of purchasing a residential property in order to rent it out to tenants as the primary use, rather than to occupy it as a home. According to GOV.UK, a landlord who lets a property in the private rented sector takes on a range of legal duties from the point a tenancy is granted, covering safety, compliance, deposit protection, and, as of 1 May 2026, the new obligations introduced by the Renters' Rights Act 2025. Buy-to-let is commonly abbreviated to BTL. Buy-to-let is usually a deliberate investment, unlike an accidental landlord, who ends up renting out a property they inherited or originally bought to live in."

How buy-to-let works as an investment model

A buy-to-let investor purchases a property with the aim of generating rental income and, over time, benefiting from capital appreciation. Buying a buy-to-let goes through the same conveyancing as any purchase, with extra checks on tenure, mortgage conditions and the stamp duty surcharge on additional dwellings. Most purchases are financed using a buy-to-let mortgage, a specialist product assessed primarily on the expected rental income rather than the buyer's salary, typically requiring a deposit of at least 25% of the property value. The investor becomes a landlord as soon as a tenancy is in place, at which point investment decisions and legal obligations become inseparable.

Gross rental yields on buy-to-let property in England averaged 6–7% in late 2025, according to data from the Global Property Guide. Returns vary significantly by region: the North East consistently produces the highest yields (around 9%), while London typically delivers 4–6%. Yield calculations must account for mortgage costs, maintenance, insurance, void periods, and tax before arriving at a net figure.

From working with self-managing landlords across the UK, we know that many new investors underestimate how quickly the regulatory obligations accumulate once a tenancy begins. The buy-to-let model is no longer a passive investment, it is, in effect, a regulated business.

Tax on buy-to-let

Buy-to-let income is treated as property income by HMRC and taxed at the landlord's marginal income tax rate after allowable expenses. Since the phased introduction of Section 24 of the Finance (No. 2) Act 2015, landlords who hold property in their personal name can no longer deduct mortgage interest as an expense. Instead, they receive a 20% basic-rate tax credit on their finance costs, a restriction that materially increases the effective tax rate for higher and additional-rate taxpayers.

Capital Gains Tax applies when a buy-to-let property is sold and has increased in value since purchase. As of May 2026, the CGT rate on residential property is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, applied to the gain above the annual exempt amount. Stamp Duty Land Tax on a buy-to-let purchase in England carries a 5% surcharge above the standard residential rates for additional properties, with thresholds as set out on GOV.UK.

A growing number of landlords hold buy-to-let property through a limited company or special purpose vehicle (SPV) to access full mortgage interest deductibility at the corporate level, though this structure introduces different tax and cost considerations. By 2025, 43% of mortgaged buy-to-let purchases were made through limited companies, up from 7.5% in 2018, according to HMRC and Companies House data.

Legal responsibilities under the Renters' Rights Act 2025

From 1 May 2026, the Renters' Rights Act 2025 is in force. Its principal changes for buy-to-let landlords in England are:

• Fixed-term assured shorthold tenancies can no longer be created. All new and existing tenancies automatically became periodic assured tenancies, running on a month-to-month basis.

• Section 21 "no-fault" evictions have been abolished. Landlords must rely on one of the reformed possession grounds in Schedule 2 of the Housing Act 1988 to recover possession through the courts.

• Ground 8 (mandatory rent arrears) now requires a higher threshold. Ground 8A introduces a new ground based on persistent arrears.

• All landlords in England must register on the Private Rented Sector Database and join the PRS Ombudsman scheme.

Beyond the Act, buy-to-let landlords remain responsible for gas safety (annual certificate), electrical safety (EICR every five years), a valid Energy Performance Certificate rated E or above for current lets, smoke and carbon monoxide alarms, deposit protection in a government-approved scheme, and the provision of prescribed documents to tenants at the start of each tenancy.

In our experience supporting landlords through the Renters' Rights Act transition, the shift that catches people out most is the loss of fixed-term certainty. Landlords who previously relied on the end of a fixed term to recover possession now need to plan around the reformed Schedule 2 grounds from the outset. August's compliance checklist tracks these obligations by property and flags upcoming deadlines automatically.

Is buy-to-let still viable in 2026?

Buy-to-let is also the foundation for capital-recycling strategies such as an all money out deal, where a post-refurbishment refinance aims to return the cash invested. Profitability depends heavily on the structure of the investment and the cost of finance. Research by Paragon Bank in August 2025 found that 87% of landlords reported making a profit, though the NRLA reported average net profits below 4% in early 2025, the lowest since 2007. Over 58,000 new buy-to-let mortgage approvals were recorded in Q1 2025, up 40% year on year, suggesting institutional and experienced investors continue to see the asset class as viable.

For a full guide to how buy-to-let mortgages work in 2026, including interest coverage ratios and lender criteria, see August's buy-to-let mortgage guide.

Frequently asked questions

Is buy-to-let the same as renting out a property? 

Yes. Buy-to-let describes the act of purchasing a property with the purpose of letting it to tenants. The term distinguishes this from accidental or incidental letting, for example, where someone rents out a home they previously lived in. The legal obligations are largely the same in either case once a tenancy is in place.

What tax do buy-to-let landlords pay? 

Buy-to-let landlords pay income tax on rental profit after allowable expenses, subject to the Section 24 mortgage interest restriction. They also pay Capital Gains Tax when selling at a profit, and Stamp Duty Land Tax at the additional-property surcharge rate on purchase. The exact amounts depend on personal tax position, the structure of the investment (personal name or limited company), and applicable allowances.

Does the Renters' Rights Act affect all buy-to-let landlords? 

The Renters' Rights Act 2025 applies to private residential lettings in England. Landlords in Wales, Scotland, and Northern Ireland are subject to separate devolved legislation. In England, all assured tenancies, including existing ones, converted to periodic assured tenancies on 1 May 2026.

What deposit do I need for a buy-to-let mortgage? 

Most buy-to-let mortgage lenders require a minimum deposit of 25% of the property value. Some lenders accept 20%, particularly for lower-risk applications, while portfolio landlords and those with complex income may be required to put down 30–40%. The higher the deposit, the lower the loan-to-value ratio and, typically, the better the available interest rate.

For an active strategy that recycles your capital rather than leaving it tied up, see the BRRRR method.

The information on this page reflects UK law as of 1 May 2026. It is provided for general guidance only and does not constitute legal, financial, or tax advice. Landlords should seek qualified professional advice for their specific circumstances.