The Essential Guide To Landlord Tax

Keys and lock the door on the background of solar garden landlord tax

If you rent out any property in the UK or overseas, you need to pay landlord tax on any profit you make. To reduce your tax bill, you can claim relief against a number of essential expenses, including landlord insurance. However, in April this year, there was a major change to how profits from property rentals could be calculated with the scrapping of mortgage interest tax relief. Find out more with our essential guide to landlord tax.

How do I pay landlord tax?

In most cases, you’ll need to complete your self assessment tax return each year for HMRC.

What rate will I be taxed at?

You’ll be taxed at your personal tax rate.

Clarifying landlord tax

It’s important to clarify that you are taxed on rental profit, not rental income. To calculate your rental profit, you need to identify all your outgoing costs and check if they can be off-set against your income for tax purposes

What are the allowable expenses that a landlord can claim?

Generally, you can claim as an allowable expense any costs related to the general running and repairs of your property. That can include:

  • Building and contents insurance and professional insurance to cover the cost of maintenance repairs
  • costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
  • professional fees relating to the property, such as letting agents’ fees or accountant’s fees
  • legal fees for lets of a year or less, or for renewing a lease of fewer than 50 years
  • water rates, council tax, gas, and electricity
  • rents such as ground rent and service charges
  • repairs, such as fixing water leaks or electrical problems
  • other costs that are directly relating to your property rental, such as phone calls, stationery and advertising for new tenants
  • replacing ‘domestic items’ such as carpets, beds, white goods, sofas, and cutlery
  • disposing items (such as fridges and cookers)

“Wholly and exclusively”

To be able to claim landlord tax relief, these costs must be “wholly and exclusively” related to the rental property.

What can’t landlords claim as allowable expenses?

You can’t claim for ‘domestic items’ if you are kitting out your rental property for the first time – the relief is only offered for replacement items. It’s also only for replacing like with like. For example, you can’t claim tax relief if you update your kitchen with a more expensive version or buy a more expensive cooker than the one you’re replacing.


You also can’t claim anything that could be seen as a capital allowance. That means you can’t claim for anything you do that improves the property or increases its value – such as renovation work, building an extension or installing central heating. Make sure you keep receipts for these items though as you may be able to use this to off-set capital gains tax in the future if you sell the property.

Changes to landlord tax introduced in April 2017

A major change to how you can calculate your rental profit came into effect in April 2017. Previously, landlords were able to claim mortgage interest tax relief. Essentially that meant that you could use the amount of interest payable on your buy to let mortgage to reduce your rental income.

These changes are being gradually introduced over the coming years and will affect tax-payers in the higher tax rate brackets:

  • 2017/18 – You can still deduct 75% of your mortgage interest from your property income. The remaining 25% will be at the basic rate of tax reduction. That means that 25% of the costs of your mortgage interest will get tax relief at only the basic rate of 20%
  • 2018/19 – The split increases to 50/50 with 50% of your finance costs allowed to be deducted from your property income and 50% at the basic tax rate reduction
  • 2019/20 – In this year, the split will take the form of a 25% finance costs deduction and 75% as a basic tax rate reduction
  • 2020/21 and into the future – 100% of mortgage interest costs will be given at the basic rate of tax reduction

Protecting your investment – can you afford the changes?

According to the National Landlords Association (NLA), the average annual mortgage finance (interest) cost for a single property is £5,600. Once changes to mortgage interest tax relief are fully implemented, it will have a substantial impact on landlords with buy to let mortgages.

The NLA says that “any single property landlords forced up a tax bracket would need to increase the rent by more than 11 per cent in order to continue to make a steady yield from the property, which equates to as much as £116 per calendar month more for the average rental property.”

To protect your investment, it’s important to clearly reassess your financial situation to ensure it is still affordable for you. You may decide that it’s just not profitable enough and decide to sell your investment.

Other ways to protect your investment

Building and contents insurance can protect your property from damage caused by fire, flood, and theft. You can also opt for insurance to protect you from damage deliberately or accidentally caused by your tenants and insurance to cover maintenance repair costs. Other types of landlord insurance can cover you for loss of rent and property owner’s liability.

Risks covered:

  • Any tenant type including asylum seekers, DSS, students, etc
  • All property types – flats (inc blocks of flats), maisonettes, houses
  • Unoccupied properties undergoing renovation

Cover options:

  • Building insurance
  • Landlord’s contents
  • Accidental damage
  • Malicious damage
  • Legal protection
  • Loss of rent
  • Property owners liability
  • Directors and Officers Insurance


As insurance is a deductible expense when calculating your rental profit, it pays to take out thorough and robust cover to protect you financially from all potential eventualities.

Park Insurance is an independent, family-run insurance broker business that understands the specific needs of landlords. Our specialist property owner’s team are ready to talk through your insurance requirements. We’ll then use this knowledge and our excellent relationships with some of the UK’s biggest insurance companies to negotiate the best prices on high-quality cover that will give you peace of mind. Call us on 0117 9556835 or get in touch.

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