Overview of Landlord Taxation

As a UK landlord, understanding your tax obligations is crucial for maximizing returns on your property investments. This guide covers everything from income tax to capital gains.

Types of Tax for Landlords

1. Income Tax on Rental Profits

Your rental income is taxable as part of your total income. The key points:

• Personal allowance: £12,570 (2024/25)
• Basic rate: 20% on income up to £50,270
• Higher rate: 40% on income £50,271 to £125,140
• Additional rate: 45% on income over £125,140

2. Mortgage Interest Relief

Since April 2020, mortgage interest relief has been replaced by a 20% tax credit. This affects higher-rate taxpayers significantly.

Example Calculation:

• Rental income: £20,000
• Mortgage interest: £8,000
• Tax credit (20%): £1,600

3. Allowable Expenses

You can deduct these costs from rental income:

• Agent fees and management costs
• Insurance (buildings, contents, rent guarantee)
• Maintenance and repairs (not improvements)
• Legal and accounting fees
• Utility bills (if included in rent)
• Ground rent and service charges
• Travel costs for property management

Capital Gains Tax (CGT)

When selling a rental property, CGT applies:

• Basic rate taxpayers: 18%
• Higher rate taxpayers: 24% (increased from 28% in Budget 2024)
• Annual exempt amount: £3,000 (2024/25)

Reducing CGT Liability

1. Use your annual exemption
2. Transfer to spouse before sale
3. Consider incorporation for larger portfolios
4. Claim Private Residence Relief if applicable

Incorporation: Should You Use a Limited Company?

For new landlords or those expanding, a limited company structure offers:

Pros:

• Full mortgage interest deduction
• Corporation tax at 25% (vs personal rates up to 45%)
• More flexible profit extraction
• Inheritance tax planning benefits

Cons:

• Higher mortgage rates for companies
• Stamp Duty Land Tax on property transfer
• More complex accounting requirements

Record Keeping Requirements

HMRC requires you to keep records for at least 5 years:

• Rental income received
• All expense receipts
• Mortgage statements
• Property purchase/sale documents

How Roost Helps with Tax Management

• Automated expense tracking - Categorize and store all receipts
• Tax report generation - Year-end summaries for your accountant
• Income tracking - Monitor all rental payments
• Document vault - Secure storage for tax records

Conclusion

Effective tax planning can significantly impact your property investment returns. Consider working with a property tax specialist and using tools like Roost to maintain accurate records.