For Landlords & Property Investors

Specialist Accountants for UK Landlords & Property Investors

Fixed fee accounting and tax support for buy to let landlords and portfolio investors: Self Assessment, Capital Gains Tax, Making Tax Digital and limited company property accounts, from real accountants who pick up the phone.

How income is taxed Allowable expenses Mortgage interest & Section 24 Furnished holiday lets Selling a property Buying a property Company or personal Joint ownership Making Tax Digital

How rental income is taxed

There’s no separate tax rate for landlords. Rental profit, your income after allowable expenses, is simply added to any other income you have and taxed at your normal Income Tax rate. If you’re a joint owner, you’re only taxed on your own share of the profit.

• •20% within the basic rate band
• •40% within the higher rate band
• •45% above £125,140

The first £1,000 of gross rental income each year is covered by the property allowance and is tax-free. You can either use this allowance or deduct your actual expenses, whichever gives the better result, but not both on the same income.

You need to register for Self Assessment and file a tax return if:

• •Your rental profit is £2,500 or more after expenses, or
• •Your gross rental income is £10,000 or more, even where expenses bring the actual profit below that

New landlords must register by 5 October following the end of the tax year they first received rental income, missing this deadline can trigger a penalty even if no tax is ultimately owed.

Allowable expenses: what you can and can’t claim

You can deduct costs that are incurred wholly for the day to day running of the letting, sometimes called revenue expenditure. Common allowable expenses include:

• •Letting agent and management fees
• •Legal fees for lets of a year or less, or for renewing a lease under 50 years
• •Accountancy fees for preparing your property accounts and tax return
• •Buildings and contents insurance
• •Repairs and maintenance, but not improvements
• •Utility bills, ground rent and service charges you pay as landlord
• •Council Tax during any void periods you cover
• •Cleaning, gardening and other services you pay for
• •Advertising, phone calls and stationery directly related to letting the property
• •Replacing a domestic item like a bed, sofa, carpet or fridge on a like-for-like basis, under replacement of domestic items relief

The distinction that catches people out is repairs versus improvements:

• •Repairs — repainting a wall, fixing a broken boiler, or replacing a worn kitchen with a similar standard one. These are deductible in the year you pay for them.
• •Improvements — adding an extension, converting a garage into a room, or replacing a small kitchen with a significantly larger or higher specification one. These aren’t deductible as an expense, they instead get added to the property’s cost for Capital Gains Tax purposes when you eventually sell.

Mortgage interest and the Section 24 restriction

This is the change that has affected personally owned buy-to-lets the most. If you own property in your own name, you can no longer deduct mortgage interest or other finance costs as an expense when working out your taxable profit. Instead, you get a tax reducer worth 20% of your finance costs, applied directly against your tax bill rather than your taxable profit.

Two things make this worse than it first looks for some landlords:

• •If you’re a higher rate taxpayer, you’re effectively only getting 20% relief on finance costs that used to attract 40% relief.
• •Because your full rental income (before interest) counts as taxable profit, it can push your total income up for other purposes, potentially reducing your Personal Allowance if your income passes £100,000, or triggering the High Income Child Benefit Charge, even though a large chunk of that income went straight to your mortgage lender.

Landlords who own property through a limited company aren’t affected by this restriction, companies still deduct loan interest in full as a normal business expense, which is one of the main reasons some landlords with larger mortgages look at incorporating.

Furnished holiday lets: what changed

The Furnished Holiday Lettings regime, which used to give holiday let owners a more generous set of tax rules than standard residential landlords, was abolished from 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax.

Former FHL owners have lost:

• •Full mortgage interest deduction, they’re now subject to the same Section 24 restriction as any other personal landlord
• •The ability to claim new plant and machinery capital allowances on furniture and equipment
• •Business Asset Disposal Relief on sale
• •Treatment of profits as relevant earnings for pension contribution purposes

If you added capital expenditure to a capital allowances pool before 6 April 2025, you can still work through that existing pool, but no new claims can be added to it. Holiday lets are now taxed exactly the same way as any other residential letting.

Selling a rental property: Capital Gains Tax

When you sell a rental property for more than you paid for it, the gain is usually subject to Capital Gains Tax. The gain is broadly your sale price minus your original purchase price, minus qualifying costs like legal and agent fees and any capital improvements you made along the way, minus your annual exempt amount, which is £3,000 for 2026/27.

The rate you pay depends on your income for the year:

• •18% on any gain that falls within your basic rate band
• •24% on the portion above it

Your taxable income is worked out first, then your taxable gain is added on top to see how much of it falls into each band.

The rule that catches landlords out most often is the reporting deadline. UK residential property gains must be reported to HMRC and the tax paid within 60 days of completion, using a separate online return, not simply included at the next Self Assessment deadline. Miss the 60 days and penalties and interest apply even if you go on to file everything correctly at year end.

If you lived in the property as your main home for part of the time you owned it, you may also be entitled to partial Private Residence Relief, it’s worth having this checked before you complete a sale rather than after.

Buying an additional property: Stamp Duty Land Tax

Buying a property that means you’ll own more than one residential property usually means paying a Stamp Duty Land Tax surcharge on top of the standard rates. This surcharge is 5% of the full purchase price, on top of the standard bands, and applies from the very first pound rather than only on the value above a threshold.

Two further points worth knowing:

• •Non-UK resident buyers pay a further 2% surcharge on top of this.
• •Multiple Dwellings Relief, which used to reduce the SDLT bill for landlords buying several properties in one transaction, was abolished for transactions completing from June 2024.

Personal ownership or a limited company?

• •Personal ownership is simpler to run and gains are taxed at Capital Gains Tax rates (18% or 24%) when you sell, but you’re subject to the Section 24 mortgage interest restriction and rental profit is taxed at your personal Income Tax rate, up to 45%.
• •A limited company deducts mortgage interest in full as a normal expense, and profits are taxed at Corporation Tax rates, 19% on profits up to £50,000 and 25% above £250,000, with marginal relief tapering the rate in between, generally lower than higher and additional rate Income Tax. The trade-off is that profits are locked inside the company until you extract them as salary or dividends, which is taxed again at that point, and the company has to file its own accounts and Corporation Tax return every year.

The catch for existing landlords is that moving properties you already own personally into a company is treated as a sale to the company at market value. That means Capital Gains Tax on any gain to date and Stamp Duty Land Tax on the transfer, often a substantial upfront cost that has to be weighed against the ongoing tax saving. It’s a very different decision for a new purchase, where buying through a company from the outset avoids that transfer cost entirely.

Company buy-to-let mortgages are also worth checking early, rates and product choice are generally narrower than for personal buy-to-let mortgages, which can affect the numbers as much as the tax treatment does.

Joint ownership and spouses

If a property is owned jointly by a married couple or civil partners, HMRC’s default assumption is that rental profit is split 50/50 between you for tax purposes, regardless of your actual ownership shares.

If your real ownership split is different, say 90/10, you can file a Form 17 election with HMRC, along with evidence of the actual beneficial ownership split, to be taxed in that different proportion instead. This is a useful, entirely legitimate way to move more of the income to whichever spouse pays a lower rate of tax, or has unused Personal Allowance.

Joint owners who aren’t married or in a civil partnership, such as friends or family members buying together, don’t fall under this 50/50 default. They’re taxed according to their actual beneficial ownership share from the outset, no election is needed.

Making Tax Digital for Income Tax: what it actually involves

Making Tax Digital for Income Tax replaces the single annual Self Assessment return with digital record keeping throughout the year and quarterly updates sent to HMRC, followed by a final declaration after the tax year ends. Records have to be kept digitally in compatible software rather than a spreadsheet you fill in once a year.

It’s being phased in based on your qualifying income, which is your gross income from property and self-employment combined, not your profit after expenses:

• •Over £50,000 in 2024/25: you should already be using it, from 6 April 2026, this phase is now live
• •Over £30,000 in 2025/26: you’ll need to use it from 6 April 2027
• •Over £20,000 in 2026/27: you’ll need to use it from 6 April 2028

HMRC assesses this per individual based on your own Self Assessment return, so joint owners are each assessed on their own share of the income, not the total. If you think you’re close to a threshold, it’s worth checking well before the start date, getting compatible software and a workable process in place takes longer than most people expect.

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