Held personally

Held through company

Profits

• Subject to Income Tax, the rate may be higher than current Corporation Tax rates.
• Calculated on a cash basis (may elect for accruals)
• Landlords claim tax relief for their actual expenses of letting.
• It may be possible to claim a fixed rate deduction of:
  • £7,500 Rent-a-room relief (if you are renting out a room in your own home)
  • £1,000 property Allowance
• No Capital Allowances  for capital items used in dwelling houses: Replacement of Domestic Items relief alternative 
• No higher tax rate relief for residential landlords on the Finance costs.
• Furnished Holiday Lettings (FHL) are taxed under a special regime

Profits

• Subject to Corporation Tax
• Calculated on an accruals basis.
• No fixed rate deductions/reliefs
• No Capital Allowances for capital items used in dwelling houses.
  • Replacement of Domestic Items relief applies
• No restriction on tax relief for finance costs
• Furnished Holiday Letting (FHL) special tax treatment does not apply to companies

 Occupation by company owner

Expenses

• Potential restriction on tax relief on costs of expenses incurred when the property is owner-occupied if the property is also commercially let.

Occupation by company owner

PAYE

• Accommodation Benefit in Kind considerations if there is private use by company owners.

Tax on disposal of the property: UK resident

• Residential subject to Capital Gains Tax (CGT) after deducting any available Annual Exemption.
• The Lower rates of CGT do not apply to the disposal of residential property.

Tax on disposal of the property: UK resident

• Gains subject to Corporation Tax
• An indexation allowance is given for property owned on or before 31 December 2017. 
• Payment date is subject to ordinary Corporation Tax payment deadlines.

Tax on disposal of the property: non-UK resident

• From 5 April 2015, a non-UK resident is subject to CGT when disposing of an interest in UK residential property.
• See Non-resident CGT: UK residential property

Tax on disposal of the property: non-UK resident

• Between 5 April 2015 and April 2019, a non-UK resident company is subject to CGT when disposing of an interest in UK residential property.
• From 1 April 2019 non-resident companies are subject to Corporation Tax on UK immovable property gains
• See Non-resident CGT: UK residential property
• From 6 April 2019, the disposal of shares in property-rich companies, by non-resident shareholders with 25% or more (with connected parties) interest will be subject to CGT.

ATED

• Between April 2013 and April 2019 gains from property that is subject to the ATED regime (see below) will be subject to ATED Capital Gains Tax.
• ATED CGT is abolished from April 2019.
• Non-resident companies were subject to CGT under two regimes.
• See ATED CGT: UK residential property & non-natural persons

Extraction of funds

Income 

• In general profits and gains are available for the individual as they are fully taxed as they arise.

Capital

• A disposal of a property at a profit will trigger a capital gain.
• A disposal is treated in most cases at market value.

 Incorporation

• Incorporation will trigger a capital disposal.
• See Buy-to-let: incorporation

Extraction of funds from the company

Profit extraction

Income Tax

• Potential double tax charge when profits are extracted as dividends.

Dividends

• Individual shareholders may have unused dividend allowances.
• Tax above the allowance is on three dividend tax bands: 7.5%, 32.5% and 38.1%, Dividend rates increase by 1.25% per band from 6 April 2022
• Tax credit abolished.
• Dividends received by pensions and ISAs are unaffected.

See Dividend tax 

Capital Gains Tax

• Profits may be extracted as a capital distribution on striking off or winding up. 
• Subject to anti-avoidance rules from 6 April 2016.
• see Transactions in Securities

Ownership

• The maximum number of legal owners of land and property is restricted to five.
• Owners need to decide whether to hold property as Joint tenants or Tenants in Common and also to consider the effect on Joint Tenants of changing beneficial interests in the property.
• See Joint Property: legal v beneficial ownership

Ownership

• A company may have multiple shareholders.
• Family shareholders should be aware of the Settlement Anti-avoidance provisions
• Shareholders may be joint shareholders although this is not normally recommended, see Joint Property: legal v beneficial ownership

Losses

• There is no 'sideways' loss relief for property losses. Losses may be offset against other profits from the same property business or carried forward.
• See Property profits and losses: adviser guide

Losses

• These cannot be offset against the owner's other income.
• Losses can be offset against total company profits of the current or future years, as long as the rental business continues.
• See Losses

Annual Tax on Enveloped Dwellings (ATED)

• No exposure to ATED charge.

Annual Tax on Enveloped Dwellings (ATED)

• The ATED regime applies to high-value residential properties held by non-natural persons e.g. a company, subject to exemption when the property is let on a commercial basis. Filing is required to claim any relief that may be available.
• The ATED charge is payable if the letting business ceases see Annual Tax on Enveloped Dwellings (ATED)

Stamp Duty Land Tax (SDLT)

• Charged to the buyer, on purchase.
• First Time buyer's relief or other reliefs may apply: this is an area where the rates of tax frequently change see Stamp Duty Land Tax rates and reliefs
• A 3% premium applies on the purchase of an additional residential property.
• See SDLT & residential property: higher rate

Land and Building Transaction Tax (LBTT)

• From 1 April 2015 properties in Scotland are subject to LBTT instead of SDLT.  
• See LBTT: Additional Dwelling Supplement

From 1 April 2018 Welsh Land Transaction Tax (LTT) replaces Stamp Duty Land Tax (SDLT) in Wales, see Welsh Land Transaction Tax.

Stamp Duty Land Tax (SDLT)

• Charged on purchase from or gift by an individual to their connected company. 
• From April 2016 a 3% premium applies on the purchase of residential property by companies.
• See SDLT & residential property.
• See Stamp Duty Land Tax rates and reliefs.

From 1 April 2015 properties in Scotland are subject to LBTT instead of SDLT.

See LBTT: Additional Dwelling Supplement

From 1 April 2018 Welsh Land Transaction Tax (LTT) replaces Stamp Duty Land Tax (SDLT) in Wales, see  Welsh Land Transaction Tax.

Stamp Duty

• Applies at a rate of 0.5% on share acquisitions of £1,000 or higher.

 Inheritance Tax (IHT)

• IHT Business Property Relief (BPR) is unlikely to apply to let property: it is an investment asset.
• Beneficiaries of the estate on death receive the property at market value: no extra CGT for them to pay on an immediate post-death sale.

IHT and non-UK domiciled individuals

• IHT only applies to UK situated assets for a non-UK domiciled individual.
• From April 2017, IHT extends to non-UK domiciled individuals (or their trusts) where UK residential property is held indirectly through a foreign company or partnership.
• see Property Letting CGT and IHT issues.

Inheritance Tax (IHT)

• IHT Business Property Relief (BPR) will not apply to shares unless the company has significant non-investment activities.
• See IHT Business Property Relief

• On death, a shareholder's shares will benefit from an uplift in market value in the hands of the beneficiaries. Property held in a company receives no similar uplift.

Non-UK domiciled owners

• From April 2017 IHT extends to non-UK domiciled individuals (or their trusts) where UK residential property is held indirectly through a foreign company or partnership.
• See Non-domicile status & tax

De-enveloping

N/A

De-enveloping

• The transfer of a residential property from a company back to its shareholders will have tax consequences.
• A range of different options are available, see De-enveloping

VAT

• Residential lets are always exempt, however commercial letting can be standard rated if the owner has Opted to Tax.
• If the property qualifies as a Furnished Holiday Let, then the income generated is standard rated and the owner will have to charge VAT if they are registered.
• See also VAT: partial exemption

VAT

• Income from property letting is exempt from VAT with the exception of commercial letting which is standard rated if the company has Opted to Tax the building.
• The letting of Furnished Holiday Lets is a standard rated activity.
• See VAT: Land and property at a glance 

Converting business into a trade

• See Furnished Holiday Letting (FHL) for more detail about generating income from property as a Furnished Holiday Let.
• A FHL qualifies as a business asset for CGT relief including roll-over relief.

Converting business into a trade

• See Profits from dealing or trading in land.
• See Furnished Holiday Letting for more detail about generating income from property as a Furnished Holiday Let.