Tax obligations and opportunities for landlords in the UK

Being a landlord offers a great source of income that can supplement or altogether replace your regular salary. But renting out property for profit comes with a raft of tax obligations to contend with. Let’s go through the basics of the major taxes landlords may be liable to pay and some strategies they can use to reduce their tax bill.

Landlord taxes: A summary

There are multiple taxes landlords need to think about. Generally speaking, they can be separated into three categories: taxes when you purchase property, taxes when you make rental profit, and taxes when you sell property. Let’s go through each in turn.

Buying property: Stamp Duty Land Tax

When you buy a residential property in the UK over a certain value, you have to pay a purchase tax. In Scotland, there’s the Land and Buildings Transaction Tax; in Wales, there’s the Land Transaction Tax; in England and Northern Ireland, it’s called Stamp Duty Land Tax.

Stamp Duty Land Tax is not due on the first £250,000 of a property’s value. However, if the property is a buy-to-let or second home worth more than £40,000, you pay an additional 3% of the property’s entire value.

Property value	SDLT
Up to £250,000	Zero
The next £675,000 (£250,001 to £925,000)	5%
The next £575,000 (£925,001 to £1.5m)	10%
The remaining amount (the portion above £1.5m)	12%

 

Please note that the zero rate band will fall from £250,000 to £125,000 on 31 March 2025. The £250,000 figure was supposed to be a temporary uplift to the original £125,000 to support the housing market during the Covid-19 pandemic and was always intended to return to its lower limit.

Rental income: Income tax and corporation tax

How your rental income is taxed will depend on whether you own the property in your own name or if a company under your ownership actually owns the property. If you own the property, you’ll pay income tax; if your company does, you’ll pay corporation tax.

Income tax

If you personally own your property and receive taxable profits of over £2,500 or an income before expenses of over £10,000, you will have to report this via a self-assessment tax return every year. All your income outside employment – not just your rental income – should be reported here. HMRC will then apply income tax to your income, the rates of which are listed below.

Band	Taxable income	Tax rate
Personal allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	Over £125,140	45%

 

Self-assessment tax returns and tax payments are due on the 31 January following the tax year that is being filed for. So, if you’re filing for the 2024/25 tax year, you would file and pay your tax return by 31 January 2026.

Corporation tax

Companies are taxed differently from individuals, as they pay corporation tax on rental profits. The rate of corporation tax currently stands at 25% for companies with profits above £250,000, while those with profits of £50,000 or less pay 19%. Profits between these two figures will be taxed at 25% but can be reduced with marginal relief.

While there are clear tax advantages to running a company, you need to make sure it’s the right decision for you. Always speak to an accountant before you set up a limited company – especially if you already own your property as you may have to pay tax when you transfer it to your company’s ownership.

Selling property: Capital gains tax

If you personally own your rental property and make a profit when you sell it, you may be liable to pay capital gains tax on the profit (companies will pay corporation tax on this instead).

Capital gains tax on property is 18% for basic rate taxpayers and 24% for higher-rate taxpayers. All taxpayers get a £3,000 tax-free allowance to reduce the tax they may be liable to pay.

Tax-saving opportunities for landlords

While paying tax is an inevitable part of being a landlord, there are several strategies you can use to minimise your tax liability:

• Claim allowable expenses: You can deduct the costs of your business expenses from your pre-tax profits, ultimately reducing the tax you owe. Make sure you understand what you can and can’t claim, and keep accurate records to back up your expense claims.
• Mortgage interest relief: Landlords can no longer claim the full cost of mortgage interests but can claim a tax credit based on 20% of mortgage interest payments. However, limited companies can claim these payments in full.
• Capital gains tax relief: You may be able to benefit from schemes designed to reduce your capital gains tax liability, like private residence relief or lettings relief.

Get in touch for help with your taxes

Understanding and managing your tax obligations as a landlord is crucial. By staying informed and taking advantage of available tax-saving opportunities, you can ensure compliance with HMRC while optimising your rental income.

For personalised advice and to ensure you’re making the most of tax-saving opportunities, get in touch with Stapletons. Our experienced team can guide you through the complexities of landlord taxation, helping you stay compliant with HMRC while maximising your rental income. We’re here to provide the support you need to navigate your tax obligations with confidence.

Contact us to learn how we can help you maximise your property investments and ensure your financial peace of mind.