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Tax Rental Property: Taxation on Buy to Let Properties

By Edited Apr 25, 2016 0 0

Taxable Rental Income

Taxation on buy to let properties is a hot topic at the moment as more and more investors are considering buying properties as the most sound investment due to the current financial climate, the uncertainty about the future of many businesses and the volatility of share prices; however, tax on rental property is not an easy aspect to deal with. If you are starting in the competitive market of buy to let due to lower house prices and rising rents, one important thing to consider is how to deal with tax.


Profit from Property Investment and Income Tax

Buying and renting property is an investment and this is exactly the treatment applied by the Tax Authorities, any profit made from rental investment is a business income and you will be taxed on the net profit “net rental income”. The error that many property investors made is that they do not fully use all the allowable deductions in order to reduce your tax bill.

The gross rental income is the money for the rent received from your tenants; however, you should deduct the following in order to reduce the taxation on your profit:


  1. Mortgage Interest: this is probably the biggest expenditure and you must deduct it from your gross rental income; however, any capital reduction should not be included as will be challenge if you do so.
  2. Repairs to the property: any maintenance expenditure or repairs to the property must be deducted as long as it doesn’t add value to the property; this is known as capital improvements and the perfect example is adding an extra room or extending the kitchen.
  3. Council tax: they are allowable expenses and must be deducted if you are the one paying for it instead of the tenant.
  4. Letting agent’s fees: regardless of the fees they charge, you can deduce them as an allowable expenses; which includes advertising costs as well.
  5. Insurance: any insurance related to the property, such as building and content insurance should be deducted as well.
  6. Cleaning: if you are the one paying for cleaning costs; the same rule applies for inventory costs – normally, the tenant is responsible for these charges; however, if it has been agreed that you are responsible for these costs then it is allowable expenditure.
  7. Service charge: service charges and ground rent is a deductible expense.
  8. Gardening: costs incurred in maintaining the garden as long as they do not allow value to the property.
  9. Wear and Tear: there is 10% allowance for “wear and tear” as long as the property is a furnished property investment.
  10. Capital allowances: capital allowance on any equipment needed to run the rental property.


What to Check When Buying a House – Survey Structure Your Investment, Renovation Project
Tax Loss on Rental Property

If you have two or more rental properties and one of them has incurred in losses, then it is appropriate to offset this loss against the profit of other of your own rental properties; however, the capital improvement rule applies – it is not an allowable expenses and should not be considered in your calculations; as well as the costs incurred when you sell your home.


Taxation on buy to let properties is a delicate subject and without the help of a professional Accountant you might omit important allowable expenses or include those that are not permitted.



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