Property Tax for Beginner Landlords 💷

February 21, 2019

Becoming a landlord is an exciting experience, you’ve saved up to purchase your first property, browsed Rightmove and Zoopla endlessly for the right price, property type and location and now you’ve signed the papers, and you’re finally living the dream but do you know your taxes? Keeping up with new regulations is key to avoiding fines and tenant complaints too.

We thought that we’d help get your landlord journey off with the right start by sharing the different types of taxes you may be liable to pay depending if the property is in your name or belongs to a limited company.

Income Tax:

If you have a property in your name, you will behave what is called Income Tax which is your rental income minus your costs and whatever money is left (your profit) you will then be taxed on that amount. You will usually pay your property tax one a year, and this will be on the 31st of January, if in your case your tax bill is over £1,000 then you will be taxed twice a year those dates being the 31st of January and 31st of July.

Capital Gains Tax:

Capital Gains is when you sell one of your buy to let properties, the tax is on the profit and this is calculated by the sale price of the property minus the original cost leaves you with your gain which you will be taxed on. Tax rates are as follows 28% if you are a high rate payer and 18% if you’re a basic rate payer.


For any professional fees that you may have to pay on your properties e.g painters, cleaners etc you will have to pay basic VAT on those activities.

Property in Limited Company

Corporation Tax:

Think of corporate tax as the equivalent to what income tax is for an individual. You not only pay tax on your profit from your rental but when you take money out of the company, you may also be taxed on your dividends. It’s worth noting that the first £5,000 is tax-free.

Stamp Duty:

It doesn’t matter if you’re an individual or limited company; either way, you will have to pay stamp duty tax on any properties you buy. In April 2017 stamp duty was increased to become a minimum of 3%, but it’s important to note that you won’t pay stamp duty on a property valued under £40,000. If the property you’re looking to purchase is over £125,000, then you will have to pay 5% in stamp duty.

Inheritance Tax:

If you own multiple high end properties and the combined value you hold in equity is over £1million, then you will have to pay inheritance 40% tax. If you’re a business owner, then you’re liable for what is called Business Property Relief which takes your business out of your estate, so you don’t pay inheritance tax.

How can you reduce the amount of tax you pay?
One of the best ways to reduce the amount of tax you pay is to account for all the expenses you can. Here are all the costs you can claim:

Capital Expenses:

These are typically things that you’re paying a large amount of capital for on your property some examples would be:

* New kitchen, bathroom, fridge
* Purchasing the property

As a landlord, you only get tax relief when you sell a property, and capital expenses can’t be offset against your rental income.

Some examples of associated costs that you won’t receive tax relief on if until you sell a property:

  • Solicitors fees
  • Accountant fees
  • Stamp duty
  • Surveyors
  • Stamp duty

Due to not being able to receive the tax relief for a long time as the whole point of investing in property is that they’re a long term investment in most cases for peoples retirement schemes. Many landlords decided to try and limit the number of capital expenses they have by legally noting them as revenue expenses which is any ongoing costs relating to running a property.

Revenue Expenses:

These are typically any expenses that are relating to the maintenance of running the property that can be used to reduce your tax bill in the current year. Some examples would be:

  • Repairs / Renewals
  • Letting Agency Fees
  • Housemate Listing Fees

Mortgage Interest Relief:

You can no longer deduct the full cost of your mortgage interest against your income.

  • If you’re a higher rate tax player (someone earning over £45,000) This means that each year your profits that you will be taxed on will continue to go up.

How do you solve this?

  • If you’re buying the property in a Limited Company then you won’t have to payer the higher tax on mortgage interest.
  • Another way for you to get around this is for you to let your property out as a furnished holiday letting (Airbnb)

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