Property tax basics

Property tax is a term that covers a multitude of different taxes paid by property owners, landlords and developers.

Property people pay a wide range of taxes depending on the use of their property.

The different property businesses

Property people pay tax depending on the type of property business they run – and some property people can run multiple businesses at the same time depending on the use of the property and the location:

UK property business

A buy to let business renting out residential homes in England, Scotland or Wales is a ‘UK property business’. This business pays income tax rental profits and capital gains tax on any increase in property value.

More about a UK property business [Opens in new window]

Overseas property business

Any buy to let property outside England, Scotland or Wales is an ‘overseas property business’. The taxes are the same as those for a UK property business.

More about an overseas property business [Opens in new window]

Property development

Buy to sell, where the intention is to sell at a profit is ‘property development’. Income tax is paid on profits and no capital gains tax is paid.

More about property development [Opens in new window]

Furnished holiday lettings – UK and Europe

Property on short term lets has special rules that are similar to those of a UK property business, but with extra capital gains tax reliefs until April 2012.

More about furnished holiday lettings in the UK and Europe [Opens in new window]

Furnished holiday lettings – Outside the UK and Europe

This property has the same rules as an overseas property business without any enhanced capital gains tax relief

More about furnished holiday lettings outside the UK and Europe [Opens in new window]

Houses in multiple occupation (HMOs)

No special tax rules apply to HMOs – treat then as part of a UK property business – but many special rules cover planning, health and safety.

More about HMOs [Opens in new window]

Buying a property – the first decision

If you are buying a property other than your main home, then the first and most important decision is the use.

The use determines which business category you slot the property in – and then how to treat the income and expenses for tax purposes.

The big issue is many property owners believe they are running a single property business regardless of the property use, when they are really running two or more property businesses at the same time and should split their accounts.

Getting this wrong can be an expensive mistake – getting the decision right simplifies record keeping and tax returns.

Deciding what type of property business you run [Opens in new window]

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