Residential property letting

Tax on rental business profits:
Unincorporated income tax rates - 20/40/45%
Incorporated2 corporation tax rates - 19%
Tax on chargeable gain on disposal:
Unincorporated 10% or 20% on excess over exempt amount
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 2017/18 the deduction from property income is restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction

Notes

  1. Annual profits are not 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

Interest relief

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction 
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

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.