Tax implications of property letting

If you’re a budding property investor or property developer, looking to rent out properties and become a fully-fledged landlord, we’ve got all the information you need when it comes to understanding the tax implications as there are different rules for residential properties, furnished holiday lettings and commercial properties. Read our blog below by our Tax Manager, Nickie Antley-Slater.

Residential Property Landlords as individuals

If you are letting out properties as an individual, you must pay income tax on your rental profits. Your rental profits are calculated by deducting allowable expenses and replacement of domestic items. Allowable expenses include the following items:

  • letting agents’ fees
  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  • accountants’ fees
  • buildings and contents insurance
  • maintenance and repairs to the property (but not improvements)
  • utility bills, like gas, water and electricity
  • rent, ground rent, service charges
  • Council Tax
  • services you pay for, like cleaning or gardening
  • other direct costs of letting the property, like phone calls, stationery and advertising.


Replacement of domestic items can include beds; sofas; curtains; carpets; fridges; crockery and cutlery, all of which must be purchased for use by the tenant in the rented property, and must replace an item which is no longer in use.


Rental property with an individual mortgage

If the property has a mortgage on it, this is no longer treated as a deductible expense, this is now treated as a tax reducer at 20% from the tax due on the net profit of the rental property. Any excess residential loan interest which is not relieved is carried forward to offset against future tax on profits.

A higher rate taxpayer will pay tax on the residential profits at 40% and only get relief for the loan interest at 20%.


Furnished Holiday Lettings for individuals

The profits of Furnished Holiday Lettings on individuals, is subject to Income Tax, however, usual deductions are available such as allowable expenses, but bear in mind that any replacement of capital items will attract capital allowances.

There is no loan interest relief restriction on Furnished Holiday Lettings therefore loan interest paid is treated as a deductible expense.

For the property to qualify as a furnished holiday let, the following need to be met:

  • the property is offered to let for at least 210 days a year
  • it is actually let for more than 105 days a year
  • no single let is more than 31 days
  • you charge the going rate according to similar properties in the area (‘market value’).

Profits from Furnished Holiday lettings also qualify for earnings for pension purposes


Commercial Property Lettings by individuals

The profits earned from commercial property lettings (such as offices and premises used for business and trade) by individuals, are subject to Income Tax. 

Again, the usual deductions are available such as allowable expenses, and as with furnished holiday lettings - any replacement of capital items will attract capital allowances.

There is no loan interest relief restriction on Commercial Property Lettings, so again, as above, any loan interest paid is a deductible expense.


Disposal of Residential Properties in the UK

If an individual disposes of residential property in the UK, they must declare this to HMRC via a personal tax account within 60 days of the completion date and pay any calculated Capital gains tax owed. They must also declare this on their self-assessment for the tax year in which the disposal is made.


Letting out a property as a Company

The profits of letting all properties as a company will be subject to Corporation Tax. The profits are calculated in the same way as for individuals, by deducting allowable expenses and relief for replacement of domestic items. However, there is currently no restriction on loan interest or finance charges, these are allowable expenses for companies letting out properties.


We’re here to help!

If you’d like to find out more about benefitting from property investment, get in touch with our expert Corporate and Personal Tax team in Warrington on 01925 830 830 or call our Manchester office on 0161 905 1801.