Property taxation affects every landlord's returns significantly. With income tax rates on property income adjusting to 22%, 42%, and 47% from April 2027, understanding your tax obligations, allowable expenses, and reporting requirements becomes essential for maintaining profitable portfolios and avoiding costly errors or penalties.

Income tax on rental income

Rental income is taxable, with rates depending on your total income including employment, pensions, and other sources. From April 2027, property income faces rates of 22% for basic rate taxpayers, 42% for higher rate, and 47% for additional rate.

Calculate your taxable rental income by subtracting allowable expenses from total rental receipts. This net figure combines with your other income to determine which tax band applies, helping you project actual returns after tax rather than focusing on gross rental income.

Rental income includes monthly rent, tenant fees for services you provide, charges for furniture or appliances, and amounts tenants pay you directly rather than through utility companies.

Allowable expenses reduce tax liability

Claiming all legitimate expenses can significantly reduce your tax bill. Allowable expenses include property maintenance and repairs, buildings and contents insurance, letting agent fees, legal and professional fees, accountancy costs, and direct costs like safety certificates or property inspections.

Mortgage interest receives tax relief as a basic rate credit rather than an allowable expense, providing a 20% credit regardless of your actual tax rate. This represents a major change, particularly affecting higher rate taxpayers.

Service charges and ground rent for leasehold properties, utility bills you pay directly, and travel costs for property management are also allowable if exclusively for rental purposes. Remember to distinguish repairs (allowable) from improvements (not allowable).

Capital gains tax on property disposal

Selling rental properties triggers capital gains tax on profits made since purchase. Calculate gains by subtracting the purchase price, acquisition costs, and improvement costs from sale proceeds minus selling costs.

Capital gains tax rates increased by two percentage points in the 2025 Autumn Budget. Annual capital gains allowances reduce taxable amounts. Keeping detailed records of improvements is crucial—without documentation, costs cannot be claimed, increasing taxable gains.

Record keeping requirements

Maintain comprehensive records of all rental income and expenses, including receipts, invoices, bank statements, tenancy agreements, deposit protection certificates, and safety inspection reports for at least six years after the tax year. Digital systems or landlord accounting software simplify tracking and reporting.

Reporting and payment deadlines

Self-assessment tax returns covering rental income must be filed by 31 January following the end of the tax year on 5 April. Payments on account are due 31 January and 31 July, with balancing payments by the next 31 January. Registering for self-assessment promptly is essential to avoid penalties.

Limited company considerations

Some landlords operate through limited companies, where corporation tax applies rather than income tax. Deciding between personal or company ownership depends on income levels, rental profit plans, and long-term intentions. Specialist advice is recommended, as ownership changes incur costs and tax implications.

Professional advice matters

Property tax rules are complex and subject to change. Accountants specialising in property taxation help ensure all allowable expenses are claimed, deadlines are met, and tax-efficient strategies are applied. Professional fees are allowable expenses, and expert guidance often saves more than it costs.

Contact us for recommendations to specialist property tax advisers