Several taxes need to be considered when you own investment property:

1. Income tax or corporation tax on rental profit

2. Capital gains tax or corporation tax on disposals of property

3. Stamp Duty Land Tax (SDLT) on purchases of property

If you own investment property personally then profits will be subject to income tax at the non-savings rates (the same as for employment income) and the rate you pay depends on the level of your other income (20%-45%).

If you own investment property through a company then profits will be subject to corporation tax (19%-25%).

Profits are calculated by taking the gross rental income and deducting expenses that relate to the rental (for example agents fees, maintenance).

The main difference between the profit calculation for individuals and companies is for mortgage interest (any capital repayment is not an allowable cost). For companies, the mortgage interest can be deducted from profit just like any other relevant expense so tax relief is provided at the corporation tax rate payable. For individuals, mortgage interest is a tax reducer at 20%, regardless of your personal tax rate, which has reduced tax efficiency for higher and additional rate taxpayers.

If you sell personally owned property then it will be subject to capital gains tax (CGT) at 18%-24%. Additionally, you may be required to file a CGT return with HMRC within 60 days of completion and pay CGT by the same date. This is relatively new and so lots of people are being caught out by this and there are penalties charged for late filing/payment.

If you sell property owned in a company then it will be subject to corporation tax at 19%-25%. The disposal will be filed with HMRC on the usual corporation tax return and tax paid at the usual payment date.

The amount subject to tax on disposal will be the proceeds less any costs of sale, less the acquisition cost and any costs of acquisition. There are situations where the proceeds will be market value rather than the actual money paid and the acquisition cost can change depending on how the property was acquired. Individuals receive a tax free allowance, currently £3,000 (2024/25) for capital gains.

SDLT is payable when property is purchased (and sometimes even if it’s gifted) and is based on the purchase price or market value. There is a surcharge on the usual rates for individuals with multiple properties or for companies purchasing property.

This is an allowable cost that can be claimed as an acquisition cost when the property is disposed of.

If property is jointly owned then the profits can be split between them based on the share of property that they own or another share that they choose. However, if those people are married or in a civil partnership then any profits are automatically split 50:50. The only way to change this is by signing a legal document and filing Form 17 with HMRC.

If you have been declaring your income incorrectly then we can help with the disclosure to HMRC to correct the position.

If you already own property via a company or are thinking of building a property portfolio then please get in touch to discuss. You should be aware that any profits/properties in the company belong to the company and withdrawing funds or using the property personally will have tax implications, so you need the right advice.

Yes, landlords do pay tax, but understanding the system can help you manage your obligations effectively and even reduce your liability. Whether you hold properties personally or through a limited company, careful planning is essential to maximise your investment returns while staying within the law.

If you’re a UK landlord seeking expert advice on your tax obligations, contact us today. We specialise in helping landlords navigate the tax landscape and can tailor our advice to suit your unique circumstances.