Tax Tips and Advice for UK Landlords

/Published:13th May 2025/inLandlords, Running a business, Tax
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Owning and managing a property portfolio in the UK can be a lucrative investment, but it comes with its own set of tax responsibilities. Whether you’re renting out a single property or managing an entire portfolio, understanding your tax obligations and how to minimise them is crucial to maintaining healthy profit margins.

In this comprehensive guide, we will walk you through:

  • The various taxes landlords must pay in the UK
  • Effective strategies to reduce your tax bill legally
  • Common and allowable expenses that can lower your taxable income
  • Important recent tax changes that could impact landlords

What Taxes Do Landlords Pay?

Being a landlord comes with several tax obligations. It’s essential to understand which taxes apply to you so you can stay compliant and avoid unexpected costs. Here are the main taxes landlords are responsible for in the UK:

Income Tax on Rental Income

As a landlord, you are required to pay Income Tax on the rental income you receive from your properties. However, this only applies once your income exceeds the Personal Allowance of £12,570 (for the 2025/26 tax year).

The rate at which you pay tax depends on your total income and which tax band you fall into:

  • Basic rate taxpayer (20%): You’ll pay 20% tax on any rental income above £12,570 but below £50,270.
  • Higher rate taxpayer (40%): If your total income exceeds £50,270, you will pay tax at 40%.
  • Additional rate taxpayer (45%): For those with total income above £125,140, the highest tax rate applies.

Tip: Ensure you keep a detailed record of your rental income and other sources of income to avoid any surprises when it’s time to pay your tax bill.

More information on rental income tax: HMRC Guide to Rental Income Tax

Income tax bands are different if you live in Scotland.

National Insurance Contributions (NICs)

In most cases, landlords do not pay National Insurance Contributions (NICs) on their rental income, as it is not considered “earned income.” However, if you’re running a property business or renting out multiple properties, you might be considered to be in business, which could require you to pay Class 2 or Class 4 NICs.

If you let out your property as a business (e.g., operating short-term holiday lets or running multiple properties as part of a portfolio), you could also be liable for NICs. The rules here are more nuanced, so it’s crucial to assess whether your activities could be classified as a business.

For more detailed information on National Insurance for landlords: HMRC National Insurance Guide

Capital Gains Tax (CGT) on Property Sales

When you sell a property (other than your primary residence), you may have to pay Capital Gains Tax (CGT) on the profit you make. CGT is calculated on the difference between the sale price of the property and the amount you originally paid for it, minus any allowable costs associated with the sale (e.g., legal fees, improvement costs).

Rates of CGT on property sales:

  • Basic rate taxpayers: 18%
  • Higher rate taxpayers: 24%

Important Exemption: You may be eligible for Private Residence Relief if the property being sold was your main home at some point. Additionally, each individual has an annual CGT allowance, meaning the first £3,000 of profit is tax-free (this has been reduced from £6,000 in 2023/24).

Learn more about Capital Gains Tax on property: HMRC Capital Gains Tax on Property

Stamp Duty Land Tax (SDLT) on Buy-to-Let Properties

If you are purchasing a property to rent out, you will be subject to Stamp Duty Land Tax (SDLT), which is calculated based on the purchase price. For buy-to-let properties, an additional 3% SDLT surcharge applies to each band of the price. This is in addition to the standard SDLT rates for property purchases.

Rates for buy-to-let properties (2025/26):

  • Up to £125,000:5%
  • £125,001 to £250,000: 7%
  • £250,001 to £925,000: 10%
  • £925,001 to £1.5 million: 15%
  • Above £1.5 million: 17%

Tip: If you buy a second property (including buy-to-let), you’ll pay SDLT at the higher rate, but there are exemptions available for certain types of properties.

Learn more about Stamp Duty for landlords: Stamp Duty for Buy-to-Let

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Tax Tips for Landlords

While paying taxes is unavoidable, there are several strategies that landlords can use to reduce their tax burden legally. Here are some of the most common and effective ways to minimise your tax bill:

Claim Allowable Expenses

Landlords are entitled to deduct certain costs incurred in the process of running and maintaining their rental properties. These allowable expenses reduce your rental income, ultimately reducing the tax you owe.

Some common allowable expenses include:

  • Mortgage interest payments (although restricted to a 20% tax credit for individuals)
  • Property management fees for letting agents or property managers
  • Repairs and maintenance (such as plumbing, painting, or fixing broken appliances)
  • Legal and professional fees (including those for contracts, legal advice, and tax preparation)
  • Insurance premiums (e.g., landlord insurance, buildings insurance, contents insurance)
  • Council tax and utilities (if paid by you and not the tenants)

For a full list of allowable expenses: HMRC Allowable Expenses Guide

Use the Rent-a-Room Scheme

The Rent-a-Room Scheme allows landlords to rent out a room in their main home without paying tax on the rental income, up to a limit of £7,500 per year.

This can be an excellent option for landlords who want to earn extra income from a spare room without triggering additional tax liabilities.

More info on the Rent-a-Room scheme: Rent-a-Room Scheme

Set Up a Limited Company

Landlords who have multiple properties often benefit from setting up a limited company to purchase and rent out properties. The key benefit of this approach is that limited companies pay Corporation Tax at a flat rate (currently 19% to 25%) rather than the individual Income Tax rates. Additionally, a company structure allows landlords to fully offset mortgage interest costs against rental income, whereas individual landlords are subject to the 20% cap on mortgage interest relief.

This strategy isn’t without its complexities, such as higher administrative costs and the challenge of extracting profits from the company. However, for portfolio landlords, it may be a more tax-efficient route.

More info about limited companies for landlords: Corporation Tax for Limited Companies

Spread Income Between Spouses

If one partner in a couple has a lower income or is in a lower tax band, consider transferring part of the property ownership to them. This can result in a lower total tax burden, as the rental income will be taxed at a lower rate.

This strategy can be particularly helpful if one spouse has unused personal tax allowance or if one spouse falls into a lower tax bracket.

Learn more about transferring property ownership between spouses: Property Transfers Between Spouses

Recent Tax Changes for Landlords

Mortgage Interest Relief Restrictions

Since April 2020, landlords can no longer fully deduct mortgage interest from rental income. Instead, they receive a 20% tax credit, which means that higher-rate taxpayers lose out on the full tax benefit they would have received previously.

Making Tax Digital (MTD) for Landlords

As part of the Making Tax Digital (MTD) initiative, landlords with a turnover above the VAT threshold must now file their tax returns digitally via HMRC-approved software.

Furnished Holiday Lettings (FHL) tax regime abolishment

Starting from 6 April 2025, the UK government will abolish the Furnished Holiday Lettings (FHL) tax regime, aligning the taxation of holiday lets with that of standard residential properties. This change will remove several tax advantages currently enjoyed by FHL landlords.​

Key Changes:

  1. Mortgage Interest Deductions: Previously, landlords could deduct the full amount of mortgage interest from their FHL income. Post-April 2025, this deduction will be replaced by a 20% tax credit, reducing the tax relief for higher and additional rate taxpayers.
  2. Capital Gains Tax (CGT): Under the current regime, FHLs qualify for Business Asset Disposal Relief (BADR), allowing gains to be taxed at a reduced rate of 10%. From April 2025, the standard residential property CGT rate of 24% will apply, and BADR will no longer be available. ​
  3. Capital Allowances: Landlords can currently claim capital allowances on items like furniture and fixtures. After April 2025, this will be replaced by the ‘replacement of domestic items relief,’ limiting deductions to the cost of replacing items that wear out or break. ​
  4. Pension Contributions: Income from FHLs is currently considered relevant UK earnings for pension contribution purposes. Post-April 2025, this income will no longer count towards the maximum pension contribution limit. ​

These changes aim to promote fairness by removing the tax advantages that FHL landlords have over other residential property landlords. Landlords operating FHLs should review their tax arrangements in light of these upcoming changes. ​

Final Thoughts on Managing Your Tax Responsibilities as a Landlord

Taxation is an important consideration for any landlord. By understanding your tax obligations and actively planning your tax strategy, you can maximise your profits and minimise your liabilities. Whether it’s through claiming allowable expenses, using tax-efficient structures, or staying updated on tax changes, there are plenty of ways to keep your tax bill in check.

If you’re unsure about your tax responsibilities or need personalised advice on reducing your tax burden, consulting with a qualified tax professional or accountant is always a wise decision.

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