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Residential property letting

Tax on rental business profits
Unincorporated income tax rates - 20/40/45% - Scottish income tax rates apply to Scottish taxpayers
Incorporated2 corporation tax rates - 19%
Tax on chargeable gain on disposal:
Unincorporated 18% or 28% on excess over exempt amount for residential let property
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
Property allowance £1,000
Interest relief In 2019/20, the deduction from property income is restricted to 25% of finance costs, with the remaining 75% 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.

Notes

  1. Annual profits are not normally subject to national insurance
  2. The rate will be dependent on your taxable income for the year
  3. Letting relief is available on let property which has been occupied as your main home

Mortgage interest relief

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 2019/20 part of any interest payments are still treated as deductible, with the remainder providing relief at 20%.

In 2019/20 the proportion deductible is 25% and 75% given as a basic-rate tax relief. After that, the following rates apply:

  • 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.

There are plans to largely abolish lettings relief in 2020, further detail to follow.

 

 

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