What taxes do landlords pay?
Landlords may be liable for income tax on rental earnings, capital gains tax on property sales, and other applicable taxes depending on their location and situation
Bear in mind, this guide is meant as a general overview of the current tax landscape. For further, more in-depth personal tax advice tailored to your specific requirements and circumstances, make sure you seek professional advice from a tax specialist.
Everyone in the UK pays tax when they buy a property over a certain price (commonly known as ‘stamp duty’), but if a property isn’t your primary residence and you let it out, you are also liable to taxation on:
the rental profits (income tax)
any increase in the value over the time that you own the property (capital gains tax)
Let’s take a look at those three types of taxation in more detail.
When you buy any residential property in the UK over a certain value, you have to pay a purchase tax. Although different parts of the UK have different systems, they all work in a similar way to income tax, with ‘bands’ set for various portions of the property value and the rate of taxation increasing with each band.
The key thing for landlords to know is that there’s then an additional rate that applies if you’re buying a residential property for more than £40,000 and you already own one (or more) – i.e. this additional rate applies to the full price you pay for buy to lets and second homes.
England and Northern Ireland: Stamp Duty Land Tax (SDLT)If you buy a home for yourself in England or Northern Ireland, you don’t pay any tax on the first £250,000 of the purchase price.
However, if it’s a buy to let or second home worth more than £40,000, you pay an additional three per cent and it’s important to note that this applies to the whole amount – there is no ‘zero’ band for additional properties.
Total
Standard rate
Higher rate
Up to £250,000
0 per cent
3 per cent
£250,001 - £925,000
5 per cent
8 per cent
£925,001 - £1.5 million
10 per cent
13 per cent
Over £1.5 million
12 per cent
15 per cent
See the government website for full details. Please note that the zero rate up to £250,000 is currently due to end on 31 March 2025. After this time, if there are no further changes, it will revert to the previous level: £125,000.
Example:
If you bought an investment property for £280,000, the SDLT calculation would be:
The first £250,000 x 3 per cent £7,500
The next £30,000 x 8 per cent £2,400
Total tax due: £9,900 (versus £1,500 if it were your own home, or zero for first time buyers)
You must send a SDLT return to HMRC and pay the tax due within 14 days of completing the purchase.
Generally speaking, your solicitor or conveyancer will do this on your behalf and add the stamp duty charge to their total bill, but do check with them that they are doing the paperwork and paying it on your behalf.
Note: Although this additional rate is an extra ‘up-front’ cost, you can offset the entire amount against your capital gains when you come to sell or dispose of the property.
Multiple dwellings relief being abolished
As it currently stands, if you buy more than one property at a time – either in the same transaction or linked transactions – you can claim SDLT relief. This essentially averages out the price per dwelling and can allow you to reduce the tax liability on the more expensive properties in the transaction.
However, this is being removed for transactions that complete from 1 June 2024, although it will still apply if contracts were exchanged on or before 6 March 2024, regardless of when the transaction completes.
Wales: Land Transaction Tax (LTT) In Wales, the higher rate for investment properties and second homes is four per cent. As in England, this additional rate applies to the whole purchase price over £40,000 and all LTT due must be paid within 30 days of completion.
While the lower-rate bands for owner-occupied homes were changed on 10 October 2022, the bands and rates for additional properties have remained the same:
Up to £225,000
£225,001 - £400,000
6 per cent
£400,001 - £750,000
7.5 per cent
£750,001 - £1.5 million
Up to £180,000
4 per cent
£180,001 - £250,000
£250,001 - £400,000
9 per cent
11.5 per cent
14 per cent
16 per cent
For full information, visit the Welsh Government website.
Scotland: Land and Buildings Transaction Tax (LBTT) In Scotland, an Additional Dwelling Supplement is charged at six per cent of the total purchase price.
The return must be lodged and payment made within 30 days of completion, which can be done via the Revenue Scotland online portal.
Up to £145,000
£145,001 - £250,000
2 per cent
£250,001 - £325,000
11 per cent
£325,001 - £750,000
Over £750,001
18 per cent
Full information is available on the Scottish Government website.
How tax on rental income is calculatedIf your annual rental profit is above £2,500 or your rental income before allowable expenses is greater than £10,000, you must complete a self assessment tax return. If you earned less than £2,500, you can check whether you need to complete a tax return using this online tool.
Your profits from property will then be added to any other earnings to give an overall personal income, on which you then pay income tax at the applicable rate.
The expenses you are and aren’t allowed to claim for are complex and are covered in the next section.
For the 2024/25 tax year in England and Wales, you’ll be taxed at 20% on earnings falling between the personal allowance of £12,570 and basic rate upper threshold of £50,270, and 40% on any amount between that and £150,000. Earnings over £150,000 will be taxed at 45%. These thresholds are currently* frozen until April 2028, as announced by the Chancellor in the 2022 autumn budget.
Earnings over £150,000 will be taxed at 45%. These thresholds are currently* frozen until 2027/8, as announced by the Chancellor in the 2022 Autumn Budget.
(*If these thresholds change, it’s likely to happen at a budget, so do check the government website for latest updates.)
You may also have to pay National Insurance, but this can be quite a complex issue, so it’s best to speak to a professional to check your obligations. It’s worth noting that 'class 4' NI contributions paid on self-employed profits of between £12,570 and £50,270, is dropping from nine per cent to six per cent from 6 April 2024.
In Scotland, the personal allowance is the same as in England and Wales, but the banding thereafter is more complex and was revised for 2023-24:
Band
Rate
Starter
£12,571* - £14,732
19%
Basic
£14,733 - £25,688
20%
Intermediate
£25,689 - £43,662
21%
Higher
£43,663 - £125,140**
42%
Top
Over £125,140
47%
*Assumes individuals are in receipt of the standard Personal Allowance.
**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
You must declare ALL your income from rent
Even if you never directly receive the rental income from your property yourself – e.g. if you have a property manager who collects the rent and keeps it in return for their work – you need to declare it on your self assessment tax return, indicating where the money ends up.
This is to avoid tax mismatches and ensure that the person who benefits from owning a property pays the tax. Some higher-rate tax payers will attempt to hide their income and reduce their tax bills by passing off someone else – often a basic rate taxpayer – as the person who benefits from the income.
Please be aware that misrepresenting your tax situation by hiding where the money goes is tax evasion and illegal.
To minimise your tax liability legally, consult a property tax specialist, who can help you structure your investments and earnings in the most appropriate and tax-efficient way.
If you are letting a room in your own property, you can earn up to £7,500 tax free per year under the ‘Rent a Room Scheme’.
However, it is worth checking whether it’s better to use this system or deduct business letting expenses from the rent including insurance, maintenance, repairs (but not improvements) and utility bills, although there will be a private use restriction for general home expenses.
You may also be subject to capital gains tax when you sell your home.
Visit the GOV.UK site for more information on renting a room
Many landlords have several properties. When this is the case, tax liabilities are considered much the same as when running any other business.
For self assessment, the important thing to note if you have different types of rental, is that income from furnished holiday lets should be reported as a separate figure, as it’s classed as a ‘trade’ and some different tax rules apply.
UK rental properties, rents and expenses should also be accounted for separately from any overseas rentals let on a long lease.
Holiday homes outside the EEA fall into the overseas rental category.
If you’re completing a paper tax return, the deadline is 31 October each year.
Online submissions can be made until midnight on 31 January for the previous year’s return.
For much more information on how to file your return and make payments, see our article, ‘Tax deadline on 31 January: what landlords need to know’.
You should already be aware that the Government intends to move everyone over to a new online-only tax filing system through its Making Tax Digital (MTD) plan.
The most recent update was made in January 2024 to the information that need to be provided – see the latest notes for reporting property income and profits on GOV.UK.
MTD requires individuals and businesses to submit quarterly returns to HMRC via MTD compatible software and it will apply to self-employed individuals and landlords with annual business or property income of:
more than £50,000 from 6 April 2026
between £30,000 and £50,000 from April 2027
If your income is under £30,000, you will not be mandated to use the scheme until a review into how it can be shaped to meet the needs of smaller businesses has been completed.
If you own property jointly – for example as a married couple – then you can each earn up to the minimum threshold (including any other income) before you need to use MTD.
You can sign up voluntarily now, so it’s worth looking into exactly what’s required now and discussing it with a property tax expert so you can make sure you have the most appropriate software ahead of the requirement coming into force.
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