Do I have to pay Income Tax on my buy-to-let?

The simple answer to this question is: "Yes." Rental income from a buy-to-let property is the same as any other income and therefore income tax must be paid on it. However, there are a few other things to consider when answering this question.

The rate your rental income is taxed at is the same as for any other types of income. In the UK this is:

  • Up to £11,500 = 0% (Personal Allowance)
  • £11,501 to £45,000 = 20% (Basic Rate)
  • £45,001 to £150,000 = 40% (Higher Rate)
  • £150,001+ = 45% (Additional Rate)

Landlords have tools at their disposal to minimise this tax liability. There are certain aspects of the landlord’s day to day life which qualify as expenses when the accounts are all put together. These include:

  • Ground rent
  • Building insurance
  • Legal fees, management fees, accountancy fees
  • Property repairs and maintenance
  • Interest on buy-to-let mortgages

As you can see, there is a significant amount of tax relief available to landlords, even if that is set to be curtailed in part following the April 2015 Budget. The changes mean that only landlords paying the Basic Rate (20%) can claim tax relief. Previously landlords in all tax bands could claim tax relief, but this is set to be stopped. These rules will come begin to be implemented in April 2017 and be in full force by 2021.

Another recent change to the tax relief available to landlords is the removal of the ‘wear and tear’ allowance. Previously landlords could claim 10% tax relief back for general maintenance costs which are expected to accrue during the lifetime of a tenancy. Now this can only be claimed if the landlord replaces furnishings.

If you are ever unsure about what does and does not qualify as income for taxation purposes, for instance what income qualifies for pensions purposes, then it is always best to speak to a professional accountant who can give you advice relevant to your specific situation. No buy-to-let investment is the same so seeking professional advice is always the best path.

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