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.

Capital gains

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.