A Guide to Income Tax for Landlords in Scotland
If you own and rent out property in Scotland, you must pay income tax on your rental earnings. Understanding how income tax applies to landlords helps you stay compliant with HMRC regulations while optimising your tax efficiency. This guide explains the key rules, tax rates, allowable expenses, and deductions available to landlords in Scotland.
Income Tax on Rental Income
Landlords in Scotland must declare rental income on their annual Self Assessment tax return. Tax is payable on the profits made from rental income after deducting allowable expenses.
Taxable Rental Income Calculation
Taxable rental income = Total rental income – Allowable expenses
For example, if you earn £15,000 from rental income and have £5,000 in allowable expenses, your taxable income is £10,000.
Income Tax Rates for Landlords (2024/25)
Scottish landlords pay income tax according to the Scottish income tax bands:
- Up to £12,570 – 0% (Personal Allowance)
- £12,571 to £14,732 – 19% (Starter Rate)
- £14,733 to £25,688 – 20% (Basic Rate)
- £25,689 to £43,662 – 21% (Intermediate Rate)
- £43,663 to £75,000 – 42% (Higher Rate)
- Over £75,000 – 47% (Top Rate)
Example Calculation
If your taxable rental income is £30,000, your income tax would be:
- £12,570 at 0% = £0
- £2,162 at 19% = £410.78
- £10,955 at 20% = £2,191
- £4,313 at 21% = £906.73
Total tax payable = £3,508.51
Allowable Expenses for Landlords
Landlords can deduct various expenses from rental income to reduce their tax liability. Allowable expenses include:
- Mortgage interest (partial relief under the finance cost restriction)
- Letting agent fees
- Property maintenance and repairs
- Council Tax and utility bills (if paid by the landlord)
- Landlord insurance
- Advertising costs for finding tenants
- Accountant and legal fees
Mortgage Interest Tax Relief
Landlords can no longer deduct full mortgage interest from rental income. Instead, a 20% tax credit is applied to mortgage interest costs, reducing the overall tax bill.
Capital Gains Tax (CGT) for Landlords
If you sell a rental property, you may need to pay Capital Gains Tax (CGT) on the profit made from the sale. The rates for residential property are:
- 18% for basic rate taxpayers
- 28% for higher rate taxpayers
You can deduct Capital Gains Tax Allowance (£6,000 for 2024/25) and certain property improvement costs.
Making Tax Digital (MTD) for Landlords
From April 2026, landlords earning over £50,000 annually must use Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA). This requires digital record-keeping and quarterly tax updates.
Conclusion
Understanding how income tax applies to landlords in Scotland is crucial for managing your rental business efficiently. By maximising allowable expenses, staying compliant with tax regulations, and planning for future tax changes, landlords can optimise their tax liabilities.
For expert advice on property taxation in Scotland, get in touch with us today!