Record keeping & accrual vs. cash basis

Landlords must maintain accurate and up-to-date records of rental income and expenses. This includes receipts, invoices, bank statements, and contracts. Landlords can choose between accrual and cash basis accounting for their rental income and expenses. Most landlords opt for the cash basis, which is simpler and aligns income and expenses with actual cash flow.

​​​​

      Expense classification & depreciation

While UK tax law does not allow for depreciation of residential property, landlords can claim capital allowances on certain types of expenditures, such as furniture and equipment in furnished properties. Proper classification of expenses is crucial. Capital expenses (e.g., property improvements) must be distinguished from revenue expenses (e.g., repairs and maintenance) as they are treated differently for tax purposes.

 

      Income tax

Rental income is subject to income tax. Landlords must report this income on their self-assessment tax returns. The rate of tax depends on the landlord’s total income and tax band (basic, higher, or additional rate).

 

      Allowable expenses & mortgage interest relief

Landlords can deduct certain expenses from their rental income to reduce their tax liability. Allowable expenses include mortgage interest (subject to restrictions), maintenance and repairs, insurance, property management fees, and utility bills. The mortgage interest relief for residential properties has been phased out and replaced with a 20% tax credit. This means landlords can no longer deduct the full amount of mortgage interest from their rental income but can claim a basic rate deduction instead.

 

      Capital gains tax (CGT)

When landlords sell a property, they may be liable for CGT on the profit made from the sale. The rate of CGT depends on whether the landlord is a basic rate or higher rate taxpayer. There are allowances and reliefs available, such as Private Residence Relief and Lettings Relief.

 

      Stamp duty & VAT

SDLT is payable on the purchase of additional properties. The rates vary based on the value of the property and whether the purchaser already owns other properties. There is a higher rate for additional properties. Residential rental income is generally exempt from VAT, but landlords must be aware of VAT implications if they have mixed-use properties or provide additional services.

 

      Making tax digital (MTD)

Landlords with annual rental income over £30,000 must comply with MTD requirements. This involves maintaining digital records and submitting quarterly updates to HMRC using compatible software.

 

      Furnished holiday lettings (FHL's)

Up to Apr 2025, properties qualifying as FHL's have special tax rules, including the ability to claim capital allowances on furniture and equipment, different CGT rules, and the potential to offset losses against other income.

 

      Non-resident landlord scheme (NRLS)

Non-resident landlords are subject to NRLS, where letting agents or tenants deduct basic rate tax from the rental income before paying it to the landlord unless an exemption is granted by HMRC.