As a landlord, you are required to pay income tax on the profit you make from renting out your property. Your rental income must be declared on a self-assessment tax return for the tax year (6 April to the next 5 April) and this needs to be filed by the next 31 January. The profit is calculated as your total rental income minus allowable expenses. Any tax liability must be paid by the tax return filing deadline and you may also need to pay payments on account for the next tax year on 31 January and 31 July.

Allowable expenses are costs that you can deduct from your rental income to reduce your tax bill. These include:

• Letting agent fees and management fees
• Property repairs and maintenance (but not improvements)
• Ground rent and service charges
• Council tax, insurance, and utility bills (if paid by the landlord)
• Accountancy fees for preparing rental accounts

If costs are below £1,000 then the property allowance can be claimed in place of actual expenses.

Only the interest element of mortgage payments can be claimed, not the capital repayment. If you have an interest only mortgage then this will be the whole payment.

The mortgage interest is not allowable as a deduction from your rental income but a basic rate tax relief can be claimed. This means the tax relief is restricted for higher or additional rate taxpayers.

If you decide to sell a rental property, you may be liable to pay CGT on the profit (gain) you make from the sale. CGT is payable on the difference between the sale price and the original purchase price, minus allowable costs such as:

• Solicitor and estate agent fees
• Costs of improvement works (but not routine repairs)
• Stamp Duty Land Tax (SDLT) paid on purchase

The CGT rates for residential property at the time of writing are:

• 18% for gain in the basic tax rate
• 24% for gain in the higher or additional tax rates

Every individual has an annual CGT allowance (£3,000 for 2024/25), which can be deducted from your total gains before calculating the tax.

If the property was at any time your main residence, you may be eligible for Private Residence Relief (PRR), which can reduce the taxable gain. 

A CGT return may need to be filed within 60 days of completion when a UK residential property is sold, and any CGT paid by the same date. Penalties will be charged for late filing and payment.

The UK government’s Making Tax Digital (MTD) initiative will require some taxpayers, including landlords, to maintain digital records and submit tax returns electronically. Landlords with gross income above £50,000 must comply with MTD for Income Tax from April 2026, and those with gross income above £30,000 from April 2027. See our previous post for more about this.

You may wish to build your property portfolio in a limited company which can be especially useful if you are a higher/additional rate taxpayer and do not need to access the profits immediately.

You should be aware of the following:

• If you already own the property(s) then there can be tax payable on transfer into a limited company.
• If any property is valued over the Annual Tax on Enveloped Dwellings (ATED) threshold then you’ll need to file an ATED return each year and may have additional tax to pay. The threshold is £500k at the time of writing.
• The mortgage interest restriction is not relevant for properties held in companies.
• The company will pay corporation tax on profits.

Navigating the UK’s property tax landscape as a landlord can be challenging, but understanding the key tax rules and planning ahead can make a significant difference. Whether it’s optimising allowable expenses, planning for CGT, or preparing for MTD, staying informed and seeking professional advice is essential for minimising your tax burden and maximising your rental income.