Landlord Taxation

Landlord Taxation – Expert Guidance for Property Owners

Owning and letting property can offer attractive returns, but each type of letting arrangement comes with its own tax implications and compliance requirements. Whether you're a residential landlord, a furnished holiday let (FHL) owner, or hold commercial or overseas property, our expert tax team can help you manage your obligations and maximize your returns.

We support landlords across the following key property categories:

• Residential Property
• Furnished Holiday Lets (UK/EEA)
• Commercial Property
• Mixed-Use Property (Commercial & Residential)
• Overseas Property (Residential or Commercial)

Let’s explore the key considerations for each:

Residential Property Lettings

This is the most common form of property rental and is typically held by individuals. Since April 2017, landlords can no longer deduct mortgage interest from rental income. Instead, relief is provided as a basic rate (20%) tax credit, regardless of your tax band.

Example Calculation:

• Rental income: £10,000
• Allowable expenses: £2,000
• Mortgage interest: £2,500
• Taxable profit: £8,000
• Tax due:
  • Basic rate (20%): £1,600 – £500 tax credit = £1,100
  • Higher rate (40%): £3,200 – £500 = £2,700
  • Additional rate (45%): £3,600 – £500 = £3,100

The tax credit for mortgage interest remains fixed at 20%, even for higher and additional rate taxpayers.

Losses & Mortgage Interest

• Rental losses are carried forward and offset against future profits from the same property business.
• Unused mortgage interest (if it exceeds profits) is also carried forward but only usable against future rental profits.
• Residential property businesses in and outside the UK are treated separately for tax purposes—losses cannot be shared between them.

Expenses

• You can claim ongoing repairs and replacements but not the cost of initial purchases or improvements.
• Capital improvements must be claimed against Capital Gains Tax upon sale, not rental income.

Furnished Holiday Lets (FHLs)

FHLs offer significant tax advantages over standard residential lettings but are subject to strict qualifying criteria. They must:

• Be available for letting at least 210 days per year
• Be commercially let for at least 105 days
• Limit stays to no more than 31 consecutive days per tenant
• Not include discounted or free use by family/friends in the 105-day calculation

Averaging Rule: If you own multiple FHLs, letting days may be averaged between properties to meet qualifying conditions.

Key Tax Benefits:

• Mortgage interest is fully deductible from rental income at your marginal tax rate.
• Capital allowances are available for items such as furniture, white goods, heating, and even some fixtures—allowing you to deduct costs upfront using the Annual Investment Allowance (AIA).
• Profits are taxed like other income, but with greater deductions allowed.

Note: Losses from an FHL can only be carried forward against future profits from FHLs and cannot be offset against other property income.

Important Changes Coming – April 2025

In the March 2024 Budget, the government announced that all FHL tax advantages will be abolished from 1 April 2025. This includes:

• No more deduction of mortgage interest at marginal rates
• Loss of capital allowances
• Loss of Business Asset Disposal Relief (BADR) – which allows a 10% CGT rate on sale; gains will now be taxed at the normal property CGT rates (18%/24%)

Act Now: Speak to Howe Bridge Consulting today for advice on restructuring and mitigating the impact of these significant changes.

Commercial Property

Commercial property remains a popular investment, particularly for its favourable tax treatment:

• Full mortgage interest deductions are allowed (unlike residential lettings).
• Capital allowances may apply to qualifying fixtures and fittings, such as lighting, heating systems, and other plant within the structure.

If a tenant installs qualifying items and holds an interest in the property (e.g., through a lease), they may be entitled to claim the capital allowances. Clear agreements should be in place between landlord and tenant.

Mixed-Use Property

Mixed-use properties contain both commercial and residential elements—e.g., a building with ground-floor shops and residential flats above.

Key Tax Consideration: You must separately account for income and expenses for each part (residential vs. commercial), due to the different tax treatments and deduction rules.

Overseas Property (Residential & Commercial)

The tax treatment of overseas property mirrors that of UK property, but with some important distinctions:

• A UK property business is separate from an overseas property business.
• Losses from one cannot offset profits from the other.
• Even within overseas property, if you own some in your name and others jointly, these may need to be treated as separate businesses for tax purposes.

Special care must be taken when managing a property portfolio that includes a combination of UK, overseas, commercial, and residential interests.

Need Help Navigating Property Tax?

Whether you're an individual landlord, a portfolio investor, or managing multiple property types, Howe Bridge Consulting can provide clear, compliant, and tax-efficient advice tailored to your situation.

Contact us today for expert property taxation support and strategic planning.