Property tax in the UK

A note before you read

Tax depends on your personal circumstances, and it is important to discuss your case with a tax expert. Below is a general account of the tax you can expect when buying property in the UK.

Tax on rental income

Many people choose property investment to provide for retirement. Tax is payable on rental income at up to 40%, depending on your circumstances. For tax purposes, renting is treated as running a rental business, whether you let one property or many.

As a landlord you are taxed on the net profit each year, calculated by adding rental income and deducting allowable property-related expenses. Income from property owned outside the UK is taxed as foreign income. A Rent a Room scheme allows a tax-free ceiling for letting part of your own home. Landlords living mostly outside the UK have different arrangements; see HMRC for details.

Capital Gains Tax (CGT)

CGT is calculated separately from income tax and charged at rates that depend on your income bracket. It applies to the proceeds of a sale, or the market value of a gift, less the original cost and after selling and improvement expenses.

CGT is payable by 31 January following the end of the relevant tax year. UK residents are liable on worldwide gains. Non-residents are normally not liable, but there are important exceptions, such as gains on UK assets used to carry on a trade in the UK.