Advice on taxes for UK landlords: The complete guide for 2022/23
This information is current and updated to the best of our knowledge as of April 2022.
As a landlord with an investment property, you’re likely to pay tax at every stage of the life of that investment: when you buy the property, when you let the property, and later when you sell or pass it on.
In short, letting is like any other business: if you make a profit, it’s liable to taxation. However, property tax is a specialist area and navigating the rules can be complicated – particularly for new landlords.
This guide outlines key things to be aware of about the taxes landlords pay and covers some of the ways you can reduce your tax liability.
Although we have tried to cover everything we can in this guide, some of the tax you will have to pay will depend on your other assets and income, so we strongly recommend you should consult a tax professional – ideally one who’s experienced in property taxation – who can help you invest in a tax-efficient way that’s appropriate for your own circumstances.
Meanwhile, this overview should help you understand your liability so you can budget properly and make sure you don’t get any surprise demands from HMRC!
Here’s a handy summary of the contents so you can jump to any section that’s of particular interest:
- What taxes do landlords pay?
- What happens if a landlord makes a loss?
- Property expenses – what you can and can’t claim
- Extra tax savings for married couples
- Staying on top of your tax liabilities
Bear in mind, this guide is meant as a general overview of the current tax landscape. For further, more in-depth personal tax advice tailored to your specific requirements and circumstances, make sure you seek professional advice from a tax specialist.
1. What taxes do landlords pay?
Everyone in the UK pays tax when they buy a property over a certain price (commonly known as ‘stamp duty’), but if a property isn’t your primary residence and you let it out, you are also liable to taxation on:
- the rental profits (income tax)
- any increase in the value over the time that you own the property (capital gains tax)
Let’s take a look at those three types of taxation in more detail.
When you buy residential property – ‘stamp duty’ purchase tax
When you buy any residential property in the UK over a certain value, you have to pay a purchase tax. Although different parts of the UK have different systems, they all work in a similar way to income tax, with ‘bands’ set for various portions of the property value and the rate of taxation increasing with each band.
The key thing for landlords to know is that there’s then an additional rate that applies if you’re buying a residential property for more than £40,000 and you already own one (or more) – i.e. this additional rate applies to the full price you pay for buy to lets and second homes.
Here’s a summary of how the purchase tax is currently applied:
England and Northern Ireland: Stamp Duty Land Tax (SDLT)
If you buy a home for yourself in England or Northern Ireland, you don’t pay any tax on the first £125,000 of the purchase price.
However, if it’s a buy to let or second home worth more than £40,000, you pay an additional three per cent and it’s important to note that this applies to the whole amount – there is no ‘zero’ band for additional properties.