Income tax on rental income
Rental profit is added to your other UK income and taxed at your marginal rate (20%/40%/45%). The wrinkle is mortgage interest: for individuals, you no longer deduct it from rental income — instead you receive a 20% tax credit on the interest amount.
Capital Gains Tax on sale
When you sell a residential rental property, CGT applies to the gain (sale price minus purchase price minus allowable costs). The annual exempt amount is £3,000 for 2025/26. Above that, residential CGT rates are 18% (basic rate) and 24% (higher rate) — reduced from 28% in April 2024.
If you've ever lived in the property as your main home, Private Residence Relief (PRR) and lettings relief may reduce the gain. This is one of the highest-leverage areas for an accountant.
Stamp Duty Land Tax
Buying additional residential property triggers a 5% surcharge on top of standard SDLT (raised from 3% in October 2024). For limited companies, the surcharge applies on every purchase. SDLT thresholds change frequently — confirm the current rate before exchanging.
Allowable expenses for landlords
- Letting agent fees
- Repairs and maintenance (NOT improvements)
- Insurance (buildings, contents, landlord)
- Council tax during void periods
- Utility bills during voids or where you cover them
- Legal and professional fees (accountancy, eviction, lease renewal)
- Replacement of domestic items relief — for furnished lets
- Travel to inspect or carry out work on the property (mileage)
- 10% wear-and-tear has been replaced — claim actual replacements only
Frequently asked questions
Can I deduct improvements to my BTL?+
No, not against rental income. Improvements (extension, new kitchen, new bathroom that's an upgrade rather than like-for-like replacement) are capital expenditure. They reduce your CGT bill when you eventually sell, but not your annual rental tax.
What's replacement of domestic items relief?+
For let furnished property, you can deduct the cost of replacing furniture, white goods, and similar items — capped at the cost of a like-for-like replacement (any genuine improvement is excluded).
Do I pay NI on rental income?+
No. Rental income is investment income, not earned income, so National Insurance doesn't apply. You only pay Income Tax.
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