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Whether you’re a buy-to-let dab hand with multiple properties or you’re just renting out a holiday place part time, there are tax implications if you receive an income from property.

Here we look at different types of landlords, what taxes might apply, and if there’s any tax relief available. Depending on how you own the property and the method you use to earn an income from it, you might need to pay tax:

  • When you buy the property
  • On the profits you make from renting it out
  • When you sell the property

Paying tax when you buy a property to rent it out

Buying residential property in the UK sometimes incurs tax on the purchase price of the property. For buy-to-lets and additional properties, there is sometimes an extra charge to pay on top of this. The kind and rate of tax depends on where the property is.

Property Location Type of Tax How Much Tax You Will Pay
England In England this tax is called Stamp Duty Land Tax. If you buy an additional property (such as a buy-to-let), you’ll pay an additional 3% on top of the Stamp Duty incurred on the sale. Use HMRC’s SDLT calculator. If you’re buying a property through a limited company, you’ll have to pay the additional supplement, even if you don’t already own a residential property.
Scotland Land and Buildings Transaction Tax (LBTT), and the Additional Dwelling Supplement (ADS) If you buy an additional property costing more than £40,000 in Scotland, you’ll need to pay an additional 4% (called the Additional Dwelling Supplement) on top of the LBTT. If you’re buying a property through a limited company, you’ll have to pay the ADS, even if you don’t already own a residential property.
Wales Land Transaction Tax (LTT) Buying an additional property in Wales incurs an additional 3% of LTT on top of the normal rate of LTT on the sale. If you’re buying a property through a limited company, you’ll have to pay the additional supplement, even if you don’t already own a residential property.

Paying tax as a residential landlord

As a residential landlord you’ll need to pay taxes on the profits you make from renting out your property. The kind of tax that you need to pay on these profits depends on whether you own the property personally or through a limited company.

The word ‘profit’ is important, because instead of paying tax on the total amount of income you receive, you’ll pay it on the amount left over once you deduct allowable expenses like property maintenance costs and letting agent fees.

If you own the property personally

You’ll get a £1,000 tax-free property allowance, so if the total amount of property income you receive in a tax year is less than the £1,000 allowance, you won’t need to tell HMRC or include this income on your tax return.

You’ll need to tell HMRC if your property income is more than the allowance. The way you do this depends on how much property rental income you receive:

  • Between £1,000 and £2,500 a year: Contact HMRC who will confirm what action you need to take next
  • £2,500 to £9,999 after allowable expenses, or £10,000 or more before allowable expenses: submit a Self Assessment tax return to pay Income Tax and National Insurance on the profits you make.

If you own the property through a limited company

Limited companies are a separate entity to the people that own and run them, so if you own your property through your company, then any income it receives belongs to the company too. You’ll need to submit a Company Tax Return to tell HMRC about the profits your company makes, and pay Corporation Tax.

Unlike sole traders, limited companies can claim tax relief on mortgage interest.

Landlords of holiday lets

Paying tax is largely the same whether you rent your property out to a long-term tenant or on a short-term basis through Airbnb.

That said, there are (currently) special tax rules for furnished holiday lettings (FHLs) which allow them additional benefits, such as claiming capital allowances on furnishings and equipment. They may also be able to offset certain expenses against their rental income.

Bear in mind that tax rules can change! The government announced in the Spring Budget 2024 that special FHL tax relief rules will be abolished in 2025.

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I became a landlord by accident. Do I have to pay tax?

The way you become a landlord doesn’t necessarily affect the tax you’ll need to pay on any income it brings you. If you became a landlord by accident, due to moving in with a partner or inheriting a property perhaps, you may still have certain tax obligations. Any rental income you receive personally will likely subject to income tax and you’ll need to report it to HMRC.

Will I need to pay tax if I sell the property?

Whether or not you need to pay tax when selling your rental property depends on things like your residency status, the profit you made from the sale and any relevant exemptions or reliefs. You’ll probably also need to pay Capital Gains Tax (CGT) on the profit made from selling the property.

However, there are some exemptions and reliefs available, such as Private Residence Relief and Lettings Relief, which can cut the amount of CGT you need to pay. This is particularly the case if the property was once your main residence or if only part of it has been let out.

Can landlords claim tax relief on their expenses?

Yes, landlords can claim tax relief on certain expenses related to letting out their property. It’s important that you keep detailed records of all your transactions and expenses related to your rental properties so you can claim the maximum amount of tax relief you’re entitled to. Don’t miss out!

Costs incurred for repairs and maintenance of the property are usually allowable for tax relief. This can include things like repairing a broken boiler or fixing a leaking roof.

Fees paid to letting agents for finding tenants and managing the property can be claimed as an expense, along with insurance costs, and utilities. If you’ve been renting out a flat or other leasehold property, you may be able to claim any ground rent or service charges as expenses for tax relief too.

Claiming tax relief on mortgage interest

You won’t be able to claim tax relief on your mortgage interest if you own the property personally. Instead, you’ll receive a reduction at the 20% basic tax rate, but this will mean more tax to pay if you’re a higher or additional rate taxpayer.

It’s a bit different for limited companies which can claim mortgage interest as an expense.

Thinking of becoming a landlord? We offer a wide range of online accountancy services to help. Don’t forget, you’re also welcome to call our team on 020 3355 4047 or get an instant online quote.

About The Author

Beth-Anne Karellen

I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.

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