top of page
Neighborhood

If you're a landlord renting out property in the UK, it's essential to understand the tax rules that apply to your rental income. Whether you're a first-time landlord or have been renting properties for years, the rules can seem complex, but knowing the basics will help you stay compliant and potentially save money. As UK accountants and tax advisers, we can help you navigate these rules, ensure your tax returns are accurate, and guide you on the best tax strategies for your property business.

'Take the stress out of managing your rental property taxes. We ensure compliance and maximise your tax-saving opportunities.'

UNDERSTANDING THE CURRENT TAX RULES FOR UK LANDLORDS:

Here's an easy guide to understanding the key tax rules for landlords in the UK:

​

1. Tax on Rental Income

​

The money you earn from renting out a property is considered rental income, and it is subject to tax. This includes not just the rent you receive, but also any other payments related to the property, such as service charges, insurance, or any other payments from your tenants.

​

  • Income Tax: Rental income is treated as income, and you must pay income tax on it. The amount of tax you pay depends on how much profit you make and your overall income.

  • Allowable Expenses: You can deduct certain costs associated with running your rental property from your rental income, which reduces the amount of tax you’ll pay.

​

These are called allowable expenses and include things like:

  • Mortgage interest (if applicable).

  • Property management fees.

  • Maintenance and repairs (but not improvements).

  • Insurance (landlord insurance, building insurance, etc.).

  • Council tax and utility bills paid by you, if applicable.

  • Legal fees for letting agreements.

​

However, mortgage interest has been restricted in recent years, so now you can only claim a basic-rate tax credit rather than deducting it directly from your rental income. This means that if you’re a higher-rate taxpayer, the tax relief you receive will be less than in the past.

​

2. Tax Rates and Income Bands (subject to change based on tax year)

​

The income tax you pay on rental income depends on your total income for the year (including earnings from employment, self-employment, and any other sources of income).

​

  • Basic Rate: If your total income is below £50,270, you will pay 20% tax on your rental profit.

​​

  • Higher Rate: If your total income is between £50,270 and £150,000, you will pay 40% tax on your rental profit.

​​

  • Additional Rate: If your total income exceeds £150,000, you will pay 45% tax on your rental profit.

​​

Your rental income is added to any other sources of income you have, and you will be taxed according to your total income.

​

3. Capital Gains Tax (CGT) on Property Sales

​

If you sell a rental property and make a profit (i.e., you sell it for more than you bought it for), you may need to pay Capital Gains Tax (CGT) on the gain.

​

  • CGT Exemption: If the property was your main residence at any point during the period you owned it, you may be eligible for Private Residence Relief to reduce or eliminate CGT.

​​

  • Tax Rate: If the property is not your main home, you may be subject to CGT at:

    • 18% for basic-rate taxpayers.

    • 28% for higher-rate taxpayers.

​​

There are also certain allowable costs you can deduct from the gain, such as improvements made to the property (not repairs, which are tax-deductible as expenses).

​

Important Note: You must report the sale of a property that generates CGT to HMRC within 60 days of the sale.

​

4. Rent-a-Room Scheme

​

If you're renting out a furnished room in your main home (rather than a separate rental property), you may qualify for the Rent-a-Room Scheme. This scheme allows you to earn up to £7,500 per year tax-free from renting out a room in your home. If you share the rental income with someone else, the allowance is halved (£3,750 each).

​

However, if you exceed this threshold, you will need to pay tax on the income, and you may need to choose whether to apply the scheme or declare the income as part of your overall rental income.

​

5. Stamp Duty Land Tax (SDLT) for Landlords

​

If you're purchasing a property to rent out, you will likely need to pay Stamp Duty Land Tax (SDLT). Landlords are subject to the standard rate of SDLT, but there is an additional 3% surcharge on properties bought for buy-to-let purposes or as second homes.

​

The rates for SDLT vary based on the purchase price of the property. For example:

​

  • 0% on properties up to £250,000.

  • 3% on properties between £250,001 and £925,000.

  • 5% on properties between £925,001 and £1.5 million.

  • Higher rates for more expensive properties.

​​

This extra 3% surcharge can add up, so it’s important to factor this into your costs when purchasing a rental property.

​

6. Tax Filing for Landlords: Self-Assessment

​

As a landlord, you are required to report your rental income and any associated expenses on a Self-Assessment tax return. This is usually due by 31 January each year.

​

How Can We Help?

Business Meeting
Business Meeting
Business Meeting
Job Interview

Managing rental income and expenses, and ensuring you're compliant with tax laws, can be complicated. As experienced UK accountants and tax advisers, we can help you:

​

  • Calculate and report your rental income: We’ll help you understand which expenses are allowable and ensure you’re making the most of your tax allowances.

​​

  • Ensure you meet CGT obligations: If you're selling a rental property, we’ll guide you through any potential capital gains tax implications and how to minimize your liability.

​​

  • Assist with tax planning: Whether you're purchasing your first buy-to-let property or expanding your portfolio, we can offer advice on how to structure your investments for tax efficiency.

​​

  • Prepare your Self-Assessment: We’ll handle your tax return and ensure everything is filed correctly and on time, avoiding penalties and interest.

​​

Taxation for landlords doesn’t have to be a headache. With the right advice and planning, you can ensure you’re paying the right amount of tax while taking full advantage of available allowances and reliefs.

​

Contact us today to discuss how we can help you with all aspects of landlord tax compliance and planning.​

  • What is self-assessment?
    Self-assessment is a system or regime by which Her Majesty’s Revenue & Customs (HMRC) assesses and collects direct tax in the UK.
  • Should I complete a self-assessment tax return?
    Most people who pay income tax in the UK do not have to complete self-assessment tax returns. These are primarily employees whose tax is deducted at source under the Pay as you Earn system (PAYE). Self-assessment therefore applies to individuals such as the self-employed (sole traders) who earn in excess of £1,000, landlords that receive rental property income, individuals who receive income from savings, investments and dividends, foreign income, income from tips and commission and any other type of untaxed earnings.
  • When are self-assessment tax returns due?
    The UK tax year starts on 6 April each year and ends on 5 April of the following year. Self assessment returns are due on the 31 January following the end of the tax year. For individuals who wish to submit paper returns, the deadline is 31 October following the end of the tax year.
  • What are payments on account?
    Payments on account are amounts that some individuals are required to pay towards their estimated tax liability for the current tax year. They are calculated based on the previous tax years liability and are paid in two equal instalments of 50% each on the 31st January and the 31st July. These amounts are then deducted from the final liability for the year and a balance payment is usually made, together with a first payment on account for the following tax year.
  • How do I get the ball rolling?
    As a starting point, you would need to register with HMRC in order to receive your 10 digit Unique Tax Payer Reference number (UTR). This number will enable you to submit your tax returns online by the 31st January deadline. If you are completing your own tax return, you would need to create an online account with HMRC once you receive your UTR number. Alternatively, if you need to help and support with getting your tax affairs complete and up to date then please get in touch for your free consultation.
bottom of page