As a landlord, you’re expected to pay income tax on any rental income you earn from your properties. While tax is an inevitable part of life, our handy guide will ensure you are aware of your financial responsibilities, whilst advising how to minimise paying tax on rental income by being as efficient as possible.

You may be a professional buy-to-let landlord or an ‘accidental landlord’ if you have inherited a property. With low interest rates predicted to remain low in the coming years, increased rental profits can also mean an increase in rental income tax.

Here at Leon & Company, we are often asked about how to minimise paying tax on rental income.

Whichever category you fall into, you will be liable for both rental Income Tax and Capital Gains Tax (if selling a property), but there are ways you can minimise tax on rental income.

How to minimise rental income tax

Make The Most Of Your Expenses

A landlord is eligible for several types of tax relief regarding the renting of their property, which can be deducted as expenses from rental income. When you submit your tax return, you can claim for some or all of the following:

  • Mortgage interest payments*
  • Maintenance and repairs costs
  • Marketing
  • Ground rent
  • Letting agent fees

The above list is by no means exhaustive. Part of our role is to identify qualifying expenditure to offset against your rental income.

*One point of note is that the mortgage interest payments are subject to a potential “Section 24” restriction depending on your tax band. Again, this is something that we can advise on.


Seek Expert Advice

An accountant knows the ins-and-outs of property tax and can apply this in-depth knowledge to the complexities of an individual. Whereas online research can be a helpful guide, advice from your accountant will ensure tax efficiency and can therefore identify opportunities to minimise tax on rental income if possible.

Moreover, to ensure we keep up to date and “in-the-know” with all things buy-to-let-property-related, we work alongside Dan Coachafer – the buy-to-let property mentor at new2property. Our tailored tax advice, coupled with the expertise of the new2property team, enables us to see things through our clients’ eyes and offer guidance on property investing strategies.


Set Up A Limited Company (A ‘Special Purpose Vehicle’ – SPV)

This strategy is not for everyone, though it does have the potential to create big savings for landlords. In recent years, almost half of landlords have formed a limited company to purchase a new rental property. This potentially allows landlords to avoid reductions in landlord tax relief and off-set a buy-to-let mortgage interest against profits, which are subject to Corporation Tax, rather than higher individual income tax rates. This route also addresses the potential “Section 24” mortgage interest restriction which can be a heavy tax burden for landlords who hold property in their own name rather than a company.

This route also gives the landlord far greater control over how they remit profits to themselves, thus providing greater opportunity for more effective tax planning.

However, there are costs involved in making the switch. A property expert or accountant can guide you through the process. They can also advise on whether this is the best option for you.


File Your Tax Return On Time

Avoid unnecessary fines by getting your tax return in on time. You must notify HMRC of your rental income by 5 October after the end of the tax year on the 5th April and fill in a self-assessment tax return. The deadline for making a paper tax return is 31 October. For an online return the deadline is 31 January the following year.


About Leon & Company

We know that the right decisions can save our clients significant amounts of cash. When we’re asked about how to minimise tax on rental income, we use our years of knowledge and experience to help reduce your tax costs. Our chartered accountants in Leeds have been supporting clients for over 35 years, from start-up businesses to seasoned business owners.

Any questions? Contact us now!