Buy-to-let costs: what a rental property really costs

A buy-to-let listing shows the price and the likely rent. The costs that decide whether it actually makes money are the ones it doesn't show: the stamp duty surcharge, the letting agent, empty months, safety certificates, repairs and, for most landlords, a tax bill that ignores half the mortgage. This guide goes through every cost, with typical figures, and then runs one real-world example through to the bottom line. Figures are for England in 2026/27.

Upfront costs: the cash you need to buy

Most buy-to-let mortgages need a deposit of at least 25%, and the costs of buying come on top of that. For a £200,000 house:

Stamp duty is the big one. If you already own a home, or you're buying through a company, you pay a 5% surcharge on top of the normal rates, on the whole price. On £200,000 that means 5% on the first £125,000 (£6,250) plus 7% on the remaining £75,000 (£5,250), a total of £11,500. A first-time buyer living in the same house would pay £1,500. Our stamp duty on second homes guide covers the surcharge in detail, and the stamp duty calculator works it out for any price.

You may also pay a mortgage broker (often £300–£700, or free if the lender pays them) and a valuation fee, which some lenders charge separately.

Running costs: what comes out of the rent

Mortgage interest. Usually the largest cost. Most landlords use an interest-only mortgage, so the monthly payment is just the interest. £150,000 at 5% is £7,500 a year, or £625 a month. Lenders also check the rent covers the interest by a margin, typically 125% to 145% of the payment at a "stress" interest rate higher than the one you'll actually pay.

Letting agent. Around 8–10% of the rent plus VAT to find tenants and collect rent, or 10–15% plus VAT for full management. On £1,100 a month, 12% plus VAT is about £158. You can manage it yourself, but budget your own time honestly.

Voids. The months with no tenant, when you still pay the mortgage, council tax and bills. Allowing one month a year (about 8% of the rent) is a common, cautious assumption.

Maintenance and repairs. Boilers, roofs, damp and wear and tear between tenants. Budgets of 1% of the property's value a year, or 10% of the rent, are common rules of thumb. Older houses usually need more.

Landlord insurance. Normal home insurance doesn't cover a rental. Buildings and landlord liability cover is usually a few hundred pounds a year.

Safety and compliance. These are legal requirements, not optional extras:

• Gas safety certificate: every year, usually £60–£100.
• Electrical safety report (EICR): at least every 5 years, usually £150–£300.
• Energy Performance Certificate (EPC): valid for 10 years, usually £60–£120. The property must currently be rated E or better to let.
• Smoke and carbon monoxide alarms, and protecting the tenant's deposit in a government-approved scheme.
• Licensing: some councils require a landlord licence for all or some rented homes, often several hundred pounds or more for 5 years. Check your council's website.

Leasehold charges. If it's a flat, add the service charge and ground rent. These can run from a few hundred to several thousand pounds a year and can rise sharply, so read the last few years' accounts before you buy.

Accountant. Optional, but many landlords pay £200–£500 a year for help with the tax return.

Worked example: the £200,000 house, month by month

The house above lets for £1,100 a month (£13,200 a year, a gross yield of 6.6%). The mortgage is £150,000 interest-only at 5%, and it's fully managed by an agent.

So roughly £930 a year before tax, on £66,800 of cash put in. That's a 1.4% cash return before any rise in the property's value. If this were a flat with a £100-a-month service charge, it would be losing money every month. And tax hasn't been counted yet.

Tax: the cost that catches people out

If you own the property in your own name, rental profit is added to your other income and taxed at your normal Income Tax rate. The catch is Section 24: since 2020, you can't deduct mortgage interest from rental income. Instead you get a tax credit worth 20% of the interest, whatever rate you pay.

In the example, the rent actually received (after the void month) is £12,100. The deductible costs (agent, maintenance, insurance, compliance and accountant) come to about £3,670. So the taxable profit is £8,430, even though the real cash profit is only about £930, because the £7,500 of interest isn't deducted.

Rental profit can also push you into a higher band. That's how many landlords end up paying 40% on part of it, or losing some child benefit or personal allowance. The Government has also announced separate, higher rates for property income from April 2027 (22%, 42% and 47%, instead of 20%, 40% and 45%), with the mortgage interest credit rising to 22%. Check the current position on GOV.UK before relying on long-term figures.

What about a limited company? Companies can deduct mortgage interest in full and pay Corporation Tax on the profit instead. But mortgage rates are usually higher, you pay tax again when you take money out as dividends, and moving an existing property into a company normally triggers stamp duty and Capital Gains Tax. It tends to suit higher-rate taxpayers buying new properties to hold long-term. Get advice from an accountant before choosing.

When you sell, any gain on a buy-to-let is subject to Capital Gains Tax at 18% or 24%, and must be reported and paid within 60 days of completion.

Costs that are easy to forget

• Remortgage fees every 2 to 5 years, when your fixed rate ends.
• Interest rate rises. In the example, going from 5% to 6% adds £125 a month and wipes out all the cashflow.
• Periods between tenancies: cleaning, redecorating and replacing carpets or appliances.
• Rule changes. The Renters' Rights Act 2025 changed how tenancies work in England from 2026, including ending "no-fault" (Section 21) evictions. Energy efficiency standards for rented homes are also expected to tighten. Both can mean more cost or longer voids.
• Selling costs: estate agent fees of 1–3% plus VAT, and legal fees.

Common mistakes

Judging a deal on gross yield. A 6.6% gross yield sounds solid, but after costs the example makes 1.4% on the cash invested, before tax. Always work from the net figure. See what is a good rental yield? for how to calculate both.

Forgetting the surcharge in the budget. On a £200,000 purchase, the 5% surcharge alone is £10,000, which usually has to come from savings, not the mortgage.

Leaving out voids and repairs because the first year went well. They're averages: some years cost nothing and some years cost a new boiler.

Working out tax as if interest were deductible. Under Section 24 it isn't, which is why a property can show a profit on paper and still lose money after tax.

Related guides and calculators

• What is a good rental yield?: gross vs net yield and what to aim for.
• Stamp duty on second homes and buy-to-let: the 5% surcharge explained.
• Rent vs buy: when buying wins: the same maths for your own home.
• Buy-to-let yield calculator and mortgage calculator.

Frequently asked questions