Profits from rentals are subject to Income Tax at your marginal rate of tax.
Expenses incurred wholly in connection with the rental business are deductible when calculating net taxable profits, providing they are not capital in nature.
Tax relief on finance costs for individuals and partnerships that let residential properties has been withdrawn, and now relief for finance costs is only provided as a basic rate tax reduction.
This effectively means that only basic rate taxpayers can obtain full relief for these types of costs - other taxpayers suffer additional tax.
The rules for determining whether an expense is capital or revenue in nature are not always straightforward.
Individuals, trustees and personal representatives are required to report and pay CGT on the disposal of UK residential properties within 60 days of completion of the sale.
In addition, non-residents are also required to report and pay CGT on disposals of commercial property within the same time limits.
Where properties are held jointly or in partnership, each owner is required to submit a return (and pay the tax) in respect of their share of the disposal. Penalties will apply if the return is filed late.
The amount to pay is based on an estimate of the tax payable. This will be treated as a "payment on account" against your total Income Tax and CGT liability for the tax year for which your annual self-assessment tax return is submitted.
H M Revenue & Customs has created a facility where you can report the disposal and pay the tax by creating a ‘Capital Gains Tax on UK property account’.
There are exceptions where the gain is covered by losses or your annual exemption for the year of disposal.
SDLT is payable on property transactions by the purchaser and is calculated based on the consideration.
England & Northern Ireland the rates are as follows:
Property or lease premium or transfer value
SDLT rate
Up to £250,000
0%
£250,001 to £925,000
5%
£925,001 to £1,500,000
10%
Over £1,500,000
12%
ScotlandThe Land and Buildings Transaction Tax rates are:
LBTT rate
Up to £145,000
£145,001 to £250,000
2%
£250,001 to £325,000
£325,001 to £750,000
Over £750,000
Up to £125,000
£125,001 to £250,000
Up to £425,000
£425,001 to £625,000
Up to £300,000
£300,001 to £500,000
As from 31 October 2024, a surcharge of 5% (previously 3%) applies to: individuals who already own residential property; limited companies; and trusts.
From 1 April 2025 the rates change to:
There are reliefs from the surcharge in limited circumstances.
Different rates apply for first time buyers if purchasing a property for £625,000 or less:
Up to £150,000
£150,001 to £250,000
Over £250,000
The two devolved taxes share most features with SDLT, but different rates and thresholds apply. Neither LBTT nor LTT have a non-resident surcharge as SDLT does, and there is no First Time Buyers’ Relief in Wales.
Scotland: The Land and Buildings Transaction Tax rates are:
Scotland: First Time Buyers’ Relief : LBTT applies a FTBR which increases the nil rate band for first time buyers to £175,000 instead of £145,000. The availability of the relief will result in a reduction in tax of up to £600 for first-time buyers.
An Additional Dwellings Supplement (ADS) is payable at a rate of 8% of the purchase price for transactions on or after 5 December 2024 if you purchase an additional residential property provided certain conditions are met.
There are different bands and rates in Wales and Scotland.
Property purchases in Scotland and Wales do not pay SDLT. Rather, if you buy a property in Scotland you pay Land and Buildings Transaction Tax, and in Wales you pay Land Transactional Tax.
Wales LTT on residential property:
LTT rate
Up to £225,000
£225,001 to £400,000
6%
£400,001 to £750,000
7.5%
£750,001 to £1,500,000
Higher LTTLBTT on residential property:
The portion up to and including £180,000
The portion over £180,000 up to and including £250,000
8.5%
The portion over £250,000 up to and including £400,000
The portion over £400,00 up to and including £750,000
12.5%
The portion over £750,00 up to and including £1,500,000
15%
The portion over £1,500,000
17%
LLT rate
The portion up to and including £225,000
The portion over £225,000 up to and including £250,000
1%
The portion over £250,000 up to and including £1,000,000
The portion over £1,000,000
PRR provides full or partial relief on the gain on the sale of a property where you have occupied it as your principal private residence at some point during ownership.
The relief is only attributable to gains for periods during ownership where it was used as your main residence.
Where a property has been your main residence, the last 9 months of ownership before the sale is treated as qualifying for PRR regardless of whether it is actually occupied as such.
Relief is also available for periods in which your main residence is let, but this only applies where the property is occupied by you and let to a lodger.
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There are special tax rules for rental income from properties that qualify as FHL.
If you let properties that qualify as FHLs:
you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Business Asset Disposal Relief, and relief for gifts of business assets) and Income Tax relief on loans to traders;
you are entitled to claim Plant and Machinery capital allowances for items such as furniture, equipment and fixtures;
the profits count as earnings for pension purposes.
To be classed as a FHL the lettings must constitute ‘the commercial letting of furnished holiday accommodation’ in the UK or in the European Economic Area (EEA), as well as the following additional conditions:
‘the availability condition’ - the accommodation must be available for commercial letting to the public generally as holiday accommodation for a minimum of 210 days during the tax year;
‘the letting condition’ - the accommodation must actually be commercially let as holiday accommodation for a minimum of 105 days during the tax year (ignoring ‘periods of longer term occupation’); and
‘pattern of occupation condition’ - during the tax year, there must not be more than 155 days falling in ‘periods of longer term occupation’. A ‘period of longer term occupation’ is a continuous period of more than 31 days during which the accommodation is in the same occupation.
Where property is let as ‘holiday accommodation’, which includes both FHL and other types of holiday letting, the income is a ‘taxable supply’ for VAT purposes. Care is therefore needed to ensure that you comply with VAT legislation - currently the threshold for compulsory VAT registration is £90,000 of ‘taxable supplies’ in any 12 month period. You may need to consider the value of your holiday accommodation income in conjunction with other income that you may have where that income also qualifies as a 'taxable supply'.
A change in use of a property may mean you will need to file an amended ATED return.
Annual Tax on Enveloped Dwellings (ATED) - where residential property is not owned personal
ATED is a tax charge on companies, and on Limited Liability Partnerships which have a corporate member, that own UK residential property valued at more than £500,000. The tax charge varies depending on the value of the property held. Returns must be filed and the tax paid at the beginning of the relevant tax year, by 30 April.
If the property is disposed of during the tax year then a claim for a refund can be made. There are several reliefs from the ATED regime which can be claimed in certain circumstances including, those applying to property developments and properties let to third parties on a commercial basis.
Tax Tip | Buying new properties through a limited company
Buying new properties through a limited company (potentially combined with the use of a Family Investment Company), particularly where the intention is to build a long-term investment portfolio, can be tax efficient as it avoids the finance cost restriction and can have other benefits.
Tax Tip | Transferring existing properties to a limited company
This can trigger an immediate charge to SDLT and CGT, and may require the cooperation of any lenders involved, therefore it requires careful consideration and planning.
Wales: The Land Transaction Tax rates are:
When you buy a residential property (freehold or leasehold) the following rates will apply to the portion of the price you pay in each band.
Wales First Time Buyers’ Relief : There is no relief available to first-time buyers in Wales.
Higher residential tax ratesWhen you buy a residential property and you already own one or more residential properties you may need to pay the higher residential rates. If you're replacing your main residence the higher rates may not apply.When:
companies buy residential properties, they'll have to pay the residential higher rates
trusts buy residential properties, they may have to pay the residential higher rates
The following rates will apply to the portion of the price you pay in each band for transactions on or after 11 December 2024. (NB: There are other rates where contracts were exchanged before 11 December 2024).
Property profits from rentals are subject to Income Tax at your marginal rate of tax, and with the withdrawal of tax relief on finance costs, determining whether an expense is capital or revenue in nature can be complex. Individuals, trustees, and personal representatives must report and pay Capital Gains Tax on the disposal of UK residential properties within 60 days, with penalties for late filing.
Yes
No
Partially
Not applicable
