The Complete Guide to Property Taxes for Rent-to-Rent Landlords

The Complete Guide to Property Taxes for Rent-to-Rent Landlords

The Rent-to-Rent business model is gaining traction in the UK, especially among property investors who want to earn income without owning a property outright. This model allows landlords to lease a property and sublet it at a higher rent to generate profit. 

However, navigating the tax landscape for Rent-to-Rent can be challenging. Here’s a clear breakdown of the taxes you need to know as a Rent-to-Rent landlord.

What Taxes Apply to Rent-to-Rent?

Income Tax 

The income you generate from subletting is considered business income. Whether it’s classified as property or trading income depends on how you manage the rental activity. Income from long-term lettings typically counts as property income, while income from short-term or serviced lettings may be treated as trading income.

Why does this matter? While both types of income are taxed at the same rates, trading income offers more flexibility in offsetting losses. Losses from a trading business can be offset against your overall income, while property losses can only be deducted from property profits.

Here’s how the tax rates apply based on your earnings:

Tax BandTaxable IncomeTax Rate
Personal AllowanceUp to £12,5700%
Basic Rate£12,570 to £50,27020%
Higher Rate£50,271 to £125,14040%
Additional RateOver £125,14045%

If classified as trading income, National Insurance Contributions (NIC) may also apply. Class 4 NIC kicks in for trading profits over £12,570, and Class 2 NIC can be paid to bolster your state pension.

Stamp Duty Land Tax (SDLT) 

SDLT (Stamp Duty Land Tax) doesn’t usually apply to Rent-to-Rent, since you’re not buying a property. However, if your agreement involves taking on a long-term lease, SDLT may come into play.

  • For leases, SDLT is calculated based on the lease premium and the Net Present Value (NPV) of the rent. The rates are:
    • Up to £150,000: 0%
    • £150,001 to £250,000: 2%
    • Above £250,000: 5%

SDLT on NPV of the rent may also apply if the lease agreement includes high rent. Calculating this can be tricky, but HMRC provides tools to help determine SDLT based on rent NPV.

Value Added Tax (VAT)

For long-term residential lettings, VAT is generally not an issue, as these are VAT-exempt. However, if you’re letting out short-term accommodation or serviced apartments, VAT may apply. VAT is charged at the standard rate of 20%, but if your business qualifies under the Tour Operators Margin Scheme (TOMS), you may only need to pay VAT on the margin (the difference between revenue and direct costs). This scheme could lead to substantial savings.

Maximizing Your Tax Efficiency

Understanding which taxes apply to your Rent-to-Rent setup can help you maximize profits and avoid costly mistakes. Be sure to track your allowable expenses (like repairs, insurance, and maintenance), which can be deducted from your taxable income, whether it’s classified as property or trading income.

For leases, keeping an eye on SDLT thresholds can prevent surprises. If your rental business involves short-term lettings, being aware of VAT and TOMS can also reduce your tax liabilities.


By understanding the tax landscape, Rent-to-Rent landlords can boost their business while staying compliant. For professional guidance, reach out to us at UK Tax Wise for tailored, expert advice on property taxes.

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