What Taxes do You Pay as a Landlords in Scotland? ADS, Income Tax and Capital Gains
How much tax do landlords pay on rental income in Scotland?
If you’re new to renting out property in Glasgow, you need to understand how much tax you will pay as a Scottish landlord. Having a clear idea of the costs involved in your rental project will help you forecast your likely income and set a budget – if you’re looking to purchase a Glasgow buy-to-let. Read on for the basics on landlords and tax in Scotland.
What tax will I pay when I buy a rental property in Scotland?
Land and Building Transaction Tax (LBTT)
Land and Building Transaction Tax (LBTT) is a tax you pay when buying property in Scotland. Known as stamp duty in England, LBTT replaced stamp duty in Scotland in 2015. You need to pay LBTT on properties costing more than £145,000 in Scotland. LBTT increases by bands depending on the purchase price – see the table below. You pay the tax at the correct rate for each part of your purchase price, so if you bought a £325,000 property, you’d pay no tax on the first £145,000, 2% on the proportion up to £250,000, then 5% on the remainder.
| Purchase price | LBTT rate |
| Up to £145,000 | 0% |
| £145,001 to £250,000 | 2% |
| £250,001 to £325,000 | 5% |
| £325,001 to £750,000 | 10% |
| Over £750,000 | 12% |
Additional Dwelling Supplement (ADS)
On top of LBTT you will pay Additional Dwelling Supplement (ADS) if buying the property means you’ll own more than one home – a likely scenario if you’re investing in buy-to-let. Similar to the stamp duty supplement in England, this additional tax was introduced by the Scottish Government in April 2016.
The rate at which you’ll pay ADS is 4% on top of the standard LBTT amount and it is charged on all second homes costing upwards of £40,000.
As the supplement can add a substantial amount to the cost of buying a rental home, you need to factor in the tax.
Tip: If you’re considering a particular Glasgow property as your buy-to-let, use the Revenue Scotland tax calculator for an accurate estimate of the tax you’ll pay.
What taxes do landlords in Scotland need to pay on their rental income?
As a landlord in Scotland, you need to pay tax on the money you make from renting out property, along with your other income. You’ll pay Scottish Income Tax, which will be paid to the Scottish Government.
- They the key things you need to know about tax on property income in Scotland are:
- Landlords receive a property allowance of £1,000, which means you won’t pay tax on your first £1,000 of income.
- If your income from property is above £2,500 (after allowable expenses) you will need to register for self-assessment and complete an annual tax return.
- If you earn between these two amounts, contact HMRC.
- How much tax you pay will depend on your combined income from property and other source. The rates of tax paid by landlords in Scotland are different from the rates elsewhere in the UK. See the table below for details.
- Most people have a personal tax allowance of £12,570, in addition to your £1,000 property allowance.
| Taxable income | Band | Tax rate |
| Over £12,571 to £14,732 | Starter rate | 19% |
| Over £14,733 to £25,688 | Scottish basic rate | 20% |
| Over £25,689 to £43,662 | Intermediate rate | 21% |
| Over £43,663 to £150,000 | Higher rate | 41% |
| Above £150,000 | Top rate | 46% |
What expenses can landlords in Scotland claim for?
Landlords can reduce their tax bill by claiming for certain allowable expenses, which come with renting out property. They include fees and charges as well as repairs and maintenance – but not home improvements.
Allowable expenses
These include:
- letting agent and accountancy fees
- landlord buildings, contents, public liability and other insurance policies.
- Ground rent, service charges, cleaning and gardening
- Maintenance and repairs – but not improvements to the property
- Council tax, gas and electricity – but only if you pay for these and include the costs in the rent.
Replacement of domestic items
You can also claim tax relief on replacing domestic items including beds, furniture, carpets and appliances, such as washing machines and fridges. These must replace existing items and be for your tenants’ use.
Claiming for mortgage interest costs
Regardless of your tax band, all landlords now receive a tax-credit for mortgage interest at a rate of 20% of your payments. This change, which came into force two years ago, replaced the previous mortgage interest tax relief. Find out more about the rules around mortgage interest and tax in Scotland.
What tax will I pay if I sell my buy-to-let in Scotland?
Capital gains tax
If you sell a property, which isn’t your main home, you will need to pay capital gains tax on the rise in value during the time you’ve owned it. This means that in most cases, buy-to-let landlords will be liable for capital gains tax at a rate of 18% for basic rate taxpayers or 28% if you pay at the higher rate.
You do, however, have a personal allowance of £12,300 for capital gains tax, meaning you won’t pay the tax up to this amount.
If you’ve lived in the property while you’ve owned it, you can claim principal private residence relief, which could reduce your tax bill – get advice from a tax advisor about this.
If you’re a new landlord in Glasgow, we’d be happy to help you get to grips with all the rules and regulations you need to be aware of, including around tax. Contact us today to discuss your property business and what you need to know.
