London Landlords will need topay 0% in tax on rental income below the basic rate threshold of £12,570, 20% in tax on rental income between £12,570 and £50,270, and 40% on rental income between £50,270 and £150,000. There will also be various property expenses to consider, including repairs and maintenance, building insurance and council tax, among other fees.
Being a landlord in London can be a great investment, but getting to grips with the world of property taxes can be confusing.
But don’t worry, we explain everything for you – so you don’t have any nasty tax surprises.
And if you do need a property expert to make sure you stay compliant with your property taxes, get in touch with J Property Management today.
How Does Income Tax On Rental Income Work?
When you earn rental income, it’s added to your other income—like your salary or pension—before your tax is calculated. Since it’s money that you’re paid regularly, the government sees it as another form of earnings.
This means rental income isn’t taxed separately, which can bump you into a higher tax bracket if you’re not careful.
You must report your rental income on a Self Assessment tax return if it’s more than:
- £2,500 after allowable expenses
- £10,000 before allowable expenses
If you do not usually send a tax return, you need to register by the 5th of October after the tax year you had rental income.
How much you pay in taxes depends on the tax brackets outlined that fiscal year.
Tax Brackets (2024/25 Tax Year) are:
- Personal Allowance: £12,570 (tax-free).
- Reduced by £1 for every £2 earned between £100,000 and £125,140
- Over £125,140, personal allowance £0
- Basic Rate: 20% on income between £12,571 and £50,270.
- Higher Rate: 40% on income between £50,271 and £125,140.
- Additional Rate: 45% on income above £125,140.
How does this work in practice?
If your total income (rental plus other income) is £60,000, you’ll pay:
- 0% on the portion up to £12,571
- 20% tax on the portion from £12,571 to £50,270.
- 40% tax on the portion above £50,270.
However, running a property, like any business does incur expenses. As a landlord, you are allowed to submit these expenses against your earnings, making sure you’re not taxed on any income that was re-invested into the property to uphold it.
Allowable Expenses For Landlords
Just like other businesses can, you are allowed to note down expenses against your property income, such as:
- Maintenance and repairs (but not improvements like a new extension).
- Landlord insurance.
- Letting agent or property management fees.
- Utility bills or council tax (if you cover these for tenants).
- Mileage for property-related travel (45p per mile for the first 10,000 miles).
If you are unsure of what you can submit as an expense, make sure you speak to a professional who can help.
It’s also important to keep all receipts and records for at least 5 years—they’ll come in handy if HMRC asks for proof.
Do You Get Any Other Tax Relief As A Landlord?
Here’s some good news: the first £1,000 of your rental income is tax-free. This is called the property allowance, and it’s perfect for landlords with low expenses. However if you claim this, then you can’t claim expenses.
It’s worth working out how much you have incurred in expenses – if it’s less than £1,000, claim the relief. If not, claim them as regular expenses.
Changes To Mortgage Interest Relief
If you are a buy to let landlord, you might be wondering if your mortgage interest counts as an expense. Previously, yes, however now you’ll get a tax credit worth 20% of your mortgage interest payments.
Example: If your mortgage interest is £10,000 you will get 20% of that (£2,000) as a tax credit.
You can then use that to offset your total tax bill.
Do You Need To Register For Self-Assessment?
If your rental income is over £1,000 per year, you need to let HMRC know.
Here’s how tax returns work:
- Register for self-assessment: Do this by 5 October following the tax year you started earning rental income.
- File your tax return: Submit it by 31 January (online) or 31 October (paper) after the tax year ends.
- If you’re making over £12,570 from your rental business and managing it like a job (e.g., owning multiple properties), you might need to pay Class 2 national insurance.
What If You Make A Loss?
If your expenses are higher than your rental income, you’ve made a loss.
This can happen if you’ve spent a lot on repairs or had periods without tenants. The good news? You can carry forward this loss to offset profits in future tax years. This gives you time to financially recover.
For Example:
Loss in 2023/24: £2,500.
Profit in 2024/25: £6,000.
Taxable profit in 2024/25: £3,500 (£6,000 – £2,500).
Should You Use A Limited Company?
Due to the high rate of taxes in the UK, you might be wondering whether you should put your property in a limited company. Here are a few things to think about:
Advantages:
- Lower taxes: Corporation tax (19%-25%) is lower than higher-rate income tax (40%-45%).
- Mortgage interest relief: Mortgage interest is deductible as an expense for companies, unlike the 20% tax credit for personal ownership.
- Reinvestment: Profits can be retained within the company and used for buying more properties or renovations.
- Easier inheritance planning: Shares in a company can be transferred to family members easier than individual properties.
Disadvantages:
- Higher costs: Limited companies have higher mortgage rates and likely have to pay an accountant all year round, rather than just once a year.
- Dividend tax: When you withdraw profits, you have to pay dividend tax (8.75%-39.35%).
- Stamp duty and capital gains: Transferring properties to a company means you have to pay stamp duty and capital gains tax again.
When It Makes Sense:
- You’re a higher-rate taxpayer.
- You own or plan to own multiple properties.
- You want to reinvest profits for portfolio growth.
When It Doesn’t:
- You own only one or two properties.
- You rely on rental income for personal income.
- You’re not planning to expand your portfolio.
If you are unsure, feel free to speak to a property management expert so you can make a more informed decision.
Tips For Staying On Top Of Property Taxes
The most important thing when it comes to taxes is being organised. Firstly, keep good records – you will need them when you submit your tax return.
Secondly, get to know the tax deadlines so you don’t have a last-minute rush to the finish line.
And lastly, speak to an advisor. Getting the right advice is incredibly important when it comes to taxes.
If you are looking to speak to a professional advisor, contact J Property Management Today.
