Understanding the Latest Tax Changes for Landlords

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The new tax year started on April 6th, bringing several key changes for landlords. In this blog, we’ve outlined the essential tax changes that landlords should be aware of.

What taxes do landlords pay?

In the UK, property buyers pay tax on purchases over a specified price, commonly referred to as ‘stamp duty.’ Additionally, if a property is not your primary residence and is rented out, you are subject to taxation on:

Rental profits, which are taxed as income.
Any increase in property value during your ownership, attracting capital gains tax.

Let’s delve into these three forms of taxation for a closer understanding.

When you buy residential property – ‘stamp duty’ purchase tax

When acquiring a residential property in the UK above a specified value, a purchase tax is applicable. The systems vary across the UK but resemble income tax, with different ‘bands’ for segments of the property value, and the taxation rate increases with each band.

For landlords, it’s crucial to be aware of an additional rate that comes into play when purchasing a residential property for over £40,000 and if you already own one or more properties. This extra rate is levied on the entire purchase price for buy-to-lets and second homes.

Here’s a summary of the current application of purchase tax in England and Northern Ireland under Stamp Duty Land Tax (SDLT):

Up to £250,000: 0% standard rate, 3% total higher rate
£250,001 to £925,000: 5% standard rate, 8% total higher rate
£925,001 to £1.5 million: 10% standard rate, 13% total higher rate
Over £1.5 million: 12% standard rate, 15% total higher rate

Wales: Land Transaction Tax (LTT)

In Wales, the higher rate for investment properties and second homes stands at four per cent. Similar to England, this additional rate applies to the entire purchase price exceeding £40,000, and all Land Transaction Tax (LTT) must be settled within 30 days of completion.

While the lower-rate bands for owner-occupied homes were adjusted on 10 October 2022, the bands and rates for additional properties have remained consistent:

Standard rate:

Up to £225,000: 0%
£225,001 to £400,000: 6%
£400,001 to £750,000: 7.5%
£750,001 to £1.5 million: 10%
Over £1.5 million: 12%

Higher rate:

Up to £180,000: 4%
£180,001 to £250,000: 7.5%
£250,001 to £400,000: 9%
£400,001 to £750,000: 11.5%
£750,001 to £1.5 million: 14%
Over £1.5 million: 16%

For full information, visit the Welsh Government website.

Scotland: Land and Buildings Transaction Tax (LBTT)

In Scotland, a six percent Additional Dwelling Supplement is levied on the entire purchase price (raised from four percent since 16 December 2022). The filing and payment deadline is 30 days from completion, facilitated through the Revenue Scotland online portal.

Standard rate Total higher rate

Up to £145,000 0 per cent 6 per cent

£145,001 to £250,000 2 per cent 8 per cent

£250,001 to £325,000 5 per cent 11 per cent

£325,001 to £750,000 10 per cent 16 per cent

Over £750,000 12 per cent 18 per cent

Full information is available on the Scottish Government website.

While you’re letting property – Income tax on renting income

How tax on rental income is calculated

If your annual rental profit exceeds £2,500 or your rental income before allowable expenses is over £10,000, you’re required to file a self-assessment tax return. Use the online tool to check if you need to complete a tax return if your earnings are below £2,500.

Your property profits are combined with other earnings, and income tax is applied at the relevant rate on your overall personal income.

The expenses you are and aren’t allowed to claim for are complex and are covered in the next section.

For the 2022/23 tax year in England and Wales, earnings between £12,570 and £50,270 are taxed at 20%, and amounts between that and £150,000 are taxed at 40%. Earnings over £150,000 face a 45% tax rate. These thresholds are frozen until 2027/8, as per the Chancellor’s announcement in the 2022 Autumn Budget.

(Note: Any changes to these thresholds are likely to occur during a budget, so check the government website for updates.)

National Insurance may also apply, but it’s a complex matter, so consulting a professional is advisable.

In Scotland, the personal allowance aligns with England and Wales, but the banding structure has been revised for 2023-24.

Band Rate

Starter £12,571* – £14,732 19%

Basic £14,733 – £25,688 20%

Intermediate £25,689 – £43,662 21%

Higher £43,663 – £125,140** 42%

Top Above £125,140 47%

Renting a room

If you’re renting a room in your property, you can earn up to £7,500 annually tax-free with the ‘Rent a Room Scheme.’ Consider comparing this with deducting business letting expenses like insurance, maintenance, repairs (excluding improvements), and utility bills. Note that there’s a private use restriction for general home expenses.

Additionally, when selling your home, be aware of potential capital gains tax implications.

Corporation tax vs. income and capital gains tax

When selling a residential property that is not your primary residence, any increase in its value over your ownership period may incur Capital Gains Tax (CGT). The gain is calculated as the difference between the purchase and sale prices, not the equity remaining after the sale. If contemplating remortgaging, leaving sufficient equity to cover potential CGT is wise.

While the annual tax-free allowance for residential property gains was £12,300 (dropped to £6,000 from April 2023 and further reduced to £3,000 from April 2024), you can deduct buying, selling, or improving costs from your gain. These include estate agents’ and solicitors’ fees, survey costs, stamp duty, and improvement expenses like conversions or extensions. Determining whether certain works qualify as improvements can be complex, so consulting a property tax specialist is recommended for accurate deductions and gain declarations. Your capital gains, like income, will include earnings from assets such as shares or dividends.