In the UK, being a landlord is rewarding because it provides you with regular income and can help your investments grow. On the other hand, as with other jobs, you are required to pay taxes. It is important to learn about your taxes so you can comply with regulations and increase your profit. Here, we will provide all the necessary information regarding what taxes do UK landlords need to pay on rental income.
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Income from Rents is Subject to Income Tax
As a landlord, you should be aware that you’ll only pay income tax on the profits from your rental business, not your overall rental income. In other words, you only have to pay taxes on your earnings once your business expenses have been taken into account.
How Rental Profit is Figured Out
Income from rents – Costs approved by tax officials = The amount of profit taxed.
You are allowed to claim the following expenses:
- Giving money to agents
- Maintenance and repairs are what count, not improvements.
- Do you have all three (building, contents, and landlord) types of insurance?
- Interest on the mortgage
- Utility bills (when you are the one who pays them)
- Council Tax (landlords are responsible)
Income Tax Rates
You must also pay for ground rent and service charges.
- The description includes the income tax rates for the upcoming 2024/25 year.
- You will be taxed at 0% if your earnings are under £12,570 (Personal Allowance).
- The Banded Manual Grade ranges from £12,571 to £50,270 annually, and 20% (Basic Rate) of taxes are applied.
- A cut-off between £50,271 to £125,140 means you pay 40% (higher rate).
- More than £125,140, which is the Additional Rate’s 45%
People with an income over £100,000 pay tax on all their income, as the personal allowance is completely withdrawn once your earnings reach £125,140.
You May be Able to Deduct from your Tax the Interest you Pay on your Primary Residence’s Mortgage
Previously, landlords did not have to worry about reporting their mortgage interest on their rental income. Even so, this practice has been eliminated. Now, a 20% basic rate tax credit can apply to your interest on a mortgage. Because of this change, tax amounts are higher for higher- and additional-rate taxpayers.
You can Receive a Tax Break of Up to £1,000 if you Own Property
If you earn less than £1,000 monthly from your rental, you can use the property allowance. Should your rental income in a year be under £1,000, you won’t have to pay any taxes on it. If the amount is higher than £1,000, you can take from your profits either:
- No other costs in your spending plan; £1,000 of your income can go here.
- There are no other costs in your spending plan, so you can allocate £1,000 of your income here.
- The expenses that you are permitted to use.
- This system works well for those renting out some of their home, such as a single room.
The Tax that is Applied to Capital Gains is Called Capital Gains Tax (CGT)
A profit on selling your rental property could lead to Capital Gains Tax being imposed on you. The profit is found by deducting what you bought the building for (plus any expenses that can be charged, such as legal and refurbishment costs) from what you sell the building for.
Prices in the real estate market:
People who pay basic rate tax use a rate of 18%.
People who pay the higher/additional rate: 24%
This year’s capital gains allowance is £3,000. Money above and beyond the allowance is the only part subject to taxation.
If the house was your primary place of residence, you might be able to get Private Residence Relief to pay less CGT.
CGT is payable, and a report must be made within 60 days of finishing the sale of UK residential property.
Stamp Duty Land Tax (SDLT)
All landlords in England and Northern Ireland must pay Stamp Duty Land Tax, and those in Scotland and Wales should pay Land and Buildings Transaction Tax and Land Transaction Tax. If the property is not a person’s first home, the landlord will be charged an additional 3% on top of normal SDLT rates. Have you purchased through a limited company? You will have to pay SDLT, and in most cases, the surcharge isn’t avoidable.
The Money you Pay through National Insurance goes into the NHS
Most landlords are not required to pay National Insurance on the rent they receive. If you’re involved in a property business (i.e., managing several properties or adding services such as cleaning or meals) and work full-time, the tax authorities may treat you as self-employed. From the year 2025, anyone running a property business as a landlord will not have to pay Class 2 NICs, as was stated in the recent Autumn Statement.
If Your Business Is Called a Limited Company, It Will Need to Pay Corporation Tax
Many landlords use a limited company, as this allows them to take advantage of reduced corporation taxes (at 25% for profits higher than £50,000). The use of this structure means that all mortgage interest can be written off. When drawing profits out of the business as dividends, it can lead to extra tax for you. Because starting a company involves obligations, documents and extra costs, you should always consult a professional before committing.
The Introduction of Making Tax Digital (MTD)
The government is introducing Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA). This influences landlords who earn rental income over:
A relief will be introduced worth £50,000 from April 2026.
From April 2027, the amount will be £30,000.
Apart from the annual return, you are also required to update your records digitally and submit your information quarterly to HMRC.
Conclusion
There are important taxes you must handle, so you should learn what taxes do UK landlords need to pay on rental income. When you earn profits, pay income tax; when you sell a property, there is capital gains tax; and when you purchase it, stamp duty must be paid, with each having its requirements. Meeting these responsibilities and taking advantage of all the allowances can help you reduce the taxes you have to pay and earn more profit. Whenever your questions involve complicated issues, seeking help from a tax professional is a good idea.
Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.