Landlord tax – deductions and relief

The tax implications of running your own business are diverse and often complicated; one could write a book on it (and indeed, many have). The support section of Commercial Trust includes a number of articles on landlord tax; here you can find a collected summary of everything you need to be aware of, and links to further reading.

The main landlord tax liabilities

If you are a landlord, tax will need to be paid on your rental income and any gains made from the sale of your commercial property. In addition, there may be some occasions when you need to pay council tax.

Income tax

You need to declare to HMRC, via a self-assessment income tax return, any income you make from renting property. The deadline for the submission of this form for the 2012–13 tax year is either 31 October (for ordinary paper forms) or 31 January (for online forms). The deadline for registration passes on 5 October.

You will pay tax at the basic rate (20%), higher rate (40%) or additional rate (45%), depending on your income; however, certain business expenses can be offset against your rental income, reducing your landlord tax bill. Be sure to keep evidence of, and declare to HMRC:

  • Fees for services (such as gardeners and cleaners, letting agents, accountants or solicitors)
  • The costs of advertising the property to tenants
  • Landlord’s insurance
  • Gas safety and energy performance certificates
  • Buy to let mortgage interest
  • Ground rent
  • Council tax (see below)
  • Utilities, if applicable (for instance, during voids)
  • General repairs that aren’t considered ‘improvements’ to the property
  • Other business costs (such as postage, telephone bills or stationery)

Capital gains tax

You also pay some tax on the profit of a sale of any commercial property, including a rental property. If you sell more than one property or any other asset in a single year, you need to work out the total gain; if you have made losses in one area, this will offset tax payable on profits in another. Losses in previous years can also be offset, provided you haven’t already claimed for them.

You can also offset expenses incurred in buying, selling or boosting the value of your property, such as:

  • Estate agent fees, conveyancing and solicitor’s costs
  • Stamp duty land tax
  • The cost of improving or adding value to the property
  • The costs of advertising the property to buyers

Depending on how much of the property you have let out and for how long you have let it, you may also qualify for ‘private residence’ and/or ‘lettings’ relief. For more information about how these can reduce your landlord tax bill, see the ‘useful reading’ section below.

Council tax

There are occasions when you, and not your tenants, will have to pay council tax. These are:

  • During voids. How much council tax you have to pay whilst your property is empty, and whether you can claim a discount if it is undergoing major repairs or refurbishment, will depend on your local authority.
  • If you let a house in multiple occupation (HMO). If your property is considered an HMO, you will be required to pay council tax instead of your tenants.

If your tenants are students, neither you nor they will need to pay council tax; however, the onus is on you to obtain your tenants’ council tax exemption certificates and prove this to the council.

Useful reading

The following articles contain useful and in-depth information on more specific areas of landlord tax:

To read more about tax in general, visit the HMRC website.

All articles on our website are for information only and should not be interpreted as providing advice. Any rates mentioned may have become outdated since the time of writing. For current rates and an unbiased personal recommendation call and speak to an adviser on the numbers at the top of this page, or complete a quote form.

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