Residential property letting
|Tax on rental business profits|
|Unincorporated||income tax rates - 20/40/45%|
|Incorporated2||corporation tax rates - 19%|
|Tax on chargeable gain on disposal:|
|Unincorporated||18% or 28% on excess over exempt amount|
|Incorporated3||corporation tax rate of 19% apart from CGT on certain high value property - rate is then 28%|
|Maximum letting relief exemption1||£40,000|
|Rent a room scheme income exemption||£7,500|
|Interest relief||In 2018/19, the deduction from property income is restricted to 50% of finance costs, with the remaining 50% being available as a basic rate tax relief against the tax arising on the rental profits.|
|Car mileage costs||Landlords are entitled to claim mileage allowances for travel in relation to their business of 45p for the first 10,000 miles and 25p thereafter.|
- Annual profits are not normally subject to national insurance
- The rate will be dependent on your taxable income for the year
- Letting relief is available on let property which has been occupied as your main home
Landlords are not permitted to deduct all of their finance costs from their property income to arrive at their property profits.
They instead receive a basic rate relief from their income tax liability on rental profits for their finance costs.
This is being phased in, so that in 2018/19 part of any interest payments are still treated as deductible, with the remainder providing relief at 20%. In 2018/19 the proportion is 50%.
After that, the following rates apply:
- in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax relief
- from 2020 to 2021, all financing costs incurred by a landlord will be given as a basic rate tax relief
Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans.No relief is available for capital repayments of a mortgage or loan.
Where the rental profits are low, or are covered by personal allowance, the relief may be reduced to zero, with the balance of finance costs carried forward to a later year.