Buy-to-let property in the UK can be owned either by an individual, or by a limited company. Allowable expenses are deducted from rental income received to give the profit made on the property letting. This profit is then taxed at a rate based on whether it is held personally or via a limited company.
Individual buy-to-let ownership
Profit from property let by individuals must be reported to HMRC on their annual self-assessment personal tax return. It will be taxed at their marginal rate of income tax dependent on the level of PAYE income:
• 20% at basic rate,
• 40% at higher rate
• 45% at additional rate
Individuals must keep full records of all rental income and allowable expenses throughout the year, in order to facilitate completion of the self-assessment.
From April 2024, the government is extending the requirement to operate Making Tax Digital (MTD) to landlords with property income over £10,000. Under MTD, landlords must keep digital records and use appropriate software for this and to submit the information to HMRC.
Limited company buy-to-let ownership
Income and allowable expenditure relating to the letting of property via a limited company must be reported in its annual year-end accounts and corporation tax return. Profit made is taxed at the rate of corporation tax, currently 19%.
Full records of all rental income and allowable expenses throughout the year must be kept.
In either situation tax may be due to HMRC upon sale of the buy-to-let property. This is determined by the property value on the dates of its acquisition and sale.