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A guide to buy-to-let taxes

30 March 2022

Nick Joelson

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Everything you need to know about what taxes are payable on buy to let profits.

Capital gains tax (CGT): individual owner

CGT is not applicable until a property or properties are sold. Tax is paid on the profit made on the sale. Profits can be offset using the annual CGT allowance (currently £12,300 for an individual owner or £24,000if owned by a couple).

Expenses accrued in the sale process such as solicitors and estate agent fees can be deducted from any capital gain.

CGT bands on sale of second properties

  • Basic rate taxpayers – 18%
  • Higher rate taxpayers – 28%

Any gains should be declared on the Self Assessment tax return for that tax year and will be included when working out the landlord’s tax status for the year. Even a moderate gain might push them into a higher tax bracket.

Capital gains tax for a limited company

Capital gains tax is only paid on existing properties owned by an individual before being placed into an SPV. Instead, corporation tax is paid, which stands at 19% (2021 – 2022). However, the personal annual capital gains exemption on profits from the sale of an asset is not applicable to a company.

What expenses can I claim before calculating my CGT liability?

Allowable expenses:

  • Mortgage interest is allowable as a business expense
  • Letting agent fees, property maintenance and council tax
  • General maintenance and repairs to the property
  • Water rates, council tax, gas and electricity
  • Insurance, such as landlords’ policies for buildings, contents and public liability
  • Rental advertising costs

Do I pay income tax on rent paid to me by tenants?

Rental income is subject to income tax at the basic rate. Income received as rent is liable for income tax in the year in which it is earned. Taxation will be at 20%, 40% or 45%, depending on your income tax band.

What expenses can I claim before calculating my CGT liability?

Allowable expenses:

  • Letting agent fees, property maintenance and council tax
  • General maintenance and repairs to the property
  • Water rates, council tax, gas and electricity
  • Insurance, such as landlords’ policies for buildings, contents and public liability
  • Rental advertising costs
  • Mortgage interest and capital repayments are not allowable expenses

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