You will pay income tax on the money you make from letting a property outside a limited company, if that income pushes you over your personal allowance. The personal allowance is the amount of income you can earn each tax year without having to pay tax, and for the 2021/22 tax year is £12,570.
Certain expenses are deductible from the tax you pay if they are incurred solely for the purposes of renting and maintaining the property. These include the cost of insurance policies, repairs, and cleaning.
However, between mortgage repayments and tax bills, making a profit through letting property personally can still be a challenge, and changes to how taxation works have made it even harder. Landlords used to be able to deduct mortgage interest in full from their rental income before being liable to tax, which meant that higher-rate taxpayers benefited from significant tax relief on their profits. However, the amount of mortgage interest tax relief that can be claimed has been gradually reduced over time, and now stands at a flat tax credit of 20% on mortgage interest.
You will also have to pay capital gains tax (CGT) if you sell the property and make a profit that exceeds your current annual allowance. In the 2021/22 tax year, the CGT allowance stands at £12,300. If you’re a basic-rate taxpayer and your income is £50,000 or less a year, you’ll pay capital gains tax at a rate of 18% on any profits above your allowance, rising to 28% if you’re a higher-rate taxpayer with an income above this amount.