UK Landlord Tax

• rental income and other receipts from UK land or property
• income from letting furnished rooms in your own home
• income from Furnished Holiday Lettings (FHL) in the UK or European Economic Area (EEA)
• premiums from leasing UK land
• inducements to take an interest in letting a property (a reverse premium)

Class 2 National Insurance contributions are due only if the taxpayer is self-employed. You have to pay Class 2 National Insurance if your profits are over £12,570 a year and what you do counts as running a business, for example, if all the following apply:

• being a landlord is your main job
• you rent out more than one property
• you’re buying new properties to rent out

If your profits are under £6,725, you can make voluntary Class 2 National Insurance payments, for example, to make sure you get the full State Pension.

You don’t pay National Insurance if you’re not running a business – even if you do work like arranging repairs, advertising for tenants, and arranging tenancy agreements.

If you are a non-resident landlord earning rental income in the UK while living abroad, you are typically required to register for the Non-Resident Landlord Scheme (NRLS). You must also file a landlord tax return, reporting your rental income and expenses, and claiming allowable deductions. In most cases, you won’t need to pay tax directly to HMRC; instead, your tax liability is settled through the self-assessment process when you file your return. However, if you fail to register for the NRLS, your letting agent or tenant may withhold 20% tax at source from your rental income.

The rate at which you will pay tax on rental income in a given year is determined by your Income Tax band. Unlike resident landlords, non-resident landlords are typically not entitled to Personal Allowance.
If your income falls within these ranges:

• Below the basic rate threshold of £12,570, you won’t pay any tax on rental income. (Personal Allowance threshold)
• Between £12,570 and just below the higher rate threshold of £50,270, you’ll be subject to a 20% tax rate on your rental income
• Between £50,270 and below £125,140 – 40% tax rate will apply
• If your income exceeds £125,140 – 45%

If you earn less than £1,000 a year in rental income then you don’t have to report it to HMRC

You will be granted an annual tax-free UK Personal Allowance if one of the following conditions is met:

• You are a British national.
• You hold citizenship in a European Economic Area (EEA) country.
• You have been employed by the UK government at any point during the tax year.

Additionally, you may be eligible for the Personal Allowance if it is stipulated in the double-taxation agreement between the UK and your country of residence.

If you are a resident landlord, you will need to report your rental income on your self-assessment tax return. If you are a non-resident landlord, you will need to register with HMRC under the Non-Resident Landlord Scheme (NRLS). Your letting agent or tenant will then deduct tax from your rental income at source.

Non-resident landlords will usually be required to file a property tax return

The tax implications of selling a rental property are as follows:

When selling a rental property in the UK, both resident and non-resident individuals will generally have to pay Capital Gains Tax (CGT) on the profit they make.

The amount of CGT you pay depends on your total capital gains for the year and your income tax rate band. For resident landlords, the standard CGT rules apply, with rates of 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers.

Non-resident landlords may be subject to Non-Resident Capital Gains Tax (NRCGT), with different rates, typically 28% for individuals and 20% for corporations.

To reduce your CGT liability, you can explore various reliefs, such as Principal Private Residence Relief and other applicable exemptions, as well as make use of the annual tax-free allowance, known as the Annual Exempt Amount.

The availability and conditions of these reliefs can vary, so it’s advisable to seek professional advice to ensure compliance with current tax regulations.

Yes, you can split the rental income and expenses between you, but only if you are both joint owners of the property. You will need to agree on how you want to split the income and expenses, and you will both need to declare your share on your self-assessment tax returns.

You work out the net profit or loss for all your property lettings by:

1. adding together all your rental income
2. adding together all your allowable expenses
3. taking the expenses away from the income

Allowable expenses are things you need to spend money on in the day-to-day running of the property, like:

• 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
• interest on property loans (please note that new rules have been in force since 5 April 2017)
• 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

Allowable expenses don’t include ‘capital expenditure’ – like buying a property or renovating it beyond repairs for wear and tear. Expenses are generally ‘capital expenses’ when you:

• add something to the property that wasn’t there before
• alter, improve, or upgrade something that was existing
• include the purchase of furnishings and equipment for the property

Capital expenses aren’t allowable and can’t be claimed against your rental income but you should keep records of them as you might be able to set them against Capital Gains Tax if you sell the property in the future

You can offset your loss against:

• future profits by carrying it forward to a later year
• profits from other properties (if you have them)

You can only offset losses against future profits in the same business.

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.

You can let out as much of your home as you want. You must complete a tax return if you earn more than the threshold.

You need to pay tax on your rental income if you rent out a property in the UK.
You may also need to pay tax if you make a gain when you sell residential property in the UK.
If you live abroad for 6 months or more per year, you’re classed as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC) – even if you’re a UK resident for tax purposes. Letting agents or tenants of a non-resident landlord must:

• deduct tax from the landlord’s UK rental income; and
• pay the tax to HMRC

CGT legalization is complex but a summary of the changes for Non-Resident Landlords is as follows: Letting agents or tenants of a non-resident landlord must:

• You may also need to pay tax if you make a gain when you sell residential property in the UK.
• In addition, a taxpayer disposing of UK residential property is required to inform HMRC within 30 days of the property being conveyed that the disposal has occurred.
• Losses on disposals of UK residential property will be ring-fenced for use against gains on other UK residential properties arising to the same non-UK resident individual in the same or future years.
• If a non-resident becomes a UK resident, any unused UK residential property losses will be available as general losses against other types of capital gain from that point.
• If the non-resident is categorised as a UK self-assessment taxpayer, the CGT liability arising can be paid through the normal filing process. Otherwise, the vendor will need to make an “advance self-assessment” and pay their tax to HMRC within 60 days.

Your tax professional can provide more detail on the Capital Gains Tax rules.