You Own a Rental. But Do You Know How It’s Actually Taxed?

You’ve got a rental. Maybe two. Maybe more.

You’re watching Airbnb explode.

You’re hearing whispers about short-term lets, business rates, and people paying zero tax.

But here’s the problem:

No one’s giving you the full picture.

So I’m going to.

First: This Isn’t Passive Income Anymore

The minute you step into short-term letting, you’re not just a landlord.

You’re a business owner.

Doesn’t matter if it’s in your personal name or a limited company.

You’re playing a new game now – one with new rules, higher stakes, and less room for error.

Personal Name vs. Limited Company - Here’s the Deal

Let’s keep it simple:

Personal Ownership:

Rental income is taxed at your personal income tax rate – 20%, 40%, or 45%.
Mortgage interest? Only 20% of it is offset via a basic-rate tax credit.
Sell the property? You’re hit with Capital Gains Tax at 18% or 24%.

Limited Company Ownership:

You pay corporation tax on profits – currently 25%.
Mortgage interest? Fully deductible.
You can reinvest company profits, or pay yourself via dividends (with extra tax but more control).

Verdict? Personal ownership is simpler.

Company ownership is more strategic – especially as your portfolio grows.

But How Is Profit Actually Calculated?

This is where most landlords fall flat.

It’s not:

“What rent I got” – “What I paid the bank” = Profit.

That formula is for amateurs.

Here’s how it really works:

We collect all guest revenue from Airbnb, Booking.com, and direct bookings.
We deduct operational costs – cleaning, linen, restocking, maintenance, our 16% fee, etc.
You get the net payout.
From that, you handle your fixed costs – mortgage, utilities, insurance, council tax or business rates, broadband.
The leftovers? That’s your real profit – and it changes month to month.

That’s what you (or your accountant) declare to HMRC.

Business Rates vs. Council Tax - The Loophole Is Now Smaller

Here’s the hack landlords used to love:

If your property was:

Available for letting 140+ days/year
Actually let 70+ days/year

You could get it classed as a business, not a domestic dwelling.

That meant business rates instead of council tax.

And if the rateable value was under £15,000?

You’d often qualify for Small Business Rate Relief (SBRR).

Under £12,000? 100% relief. Zero bill.

Beautiful.

But then came 2025. And the whispers started flying.

“Relief’s been slashed. It’s over.”

Not quite. Here’s the truth:

Small Business Rate Relief is still alive and well. What changed is Retail, Hospitality and Leisure Relief - a totally different thing.

That one got cut from 75% to 40% relief from April 2025, and it has a cap of £110,000 per business. If you’re running a larger portfolio through one company, yes - that’s a squeeze.

But for single-property landlords or those with smaller setups? SBRR still applies - assuming your rateable value is low enough.

One catch: getting that rateable value can be like pulling teeth. The VOA are slow, some councils play awkward, and if your property’s in a personal name, you might get more resistance.

Still - if you qualify, business rates with SBRR can save you a serious chunk.

Just don’t confuse the reliefs, and definitely don’t assume it’s automatic.

What You Can and Can’t Offset

Here’s the good news:

This is still a business – and that means business expenses reduce your tax bill.

Allowable expenses include:

✅ Cleaning

✅ Linen & restocking

✅ Consumables (tea, coffee, toilet roll, etc)

✅ Management fees

✅ Maintenance & minor repairs

✅ Insurance

✅ Council tax or business rates

✅ Broadband, TV licences, smart tech subscriptions

You can’t deduct:

❌ Property improvements (e.g. loft conversions, new kitchens)

❌ Your time

❌ Personal expenses

If you own via a limited company, you also get full relief on mortgage interest, which can make a huge difference to profitability.

The Bottom Line

Short-term lets are still powerful.

They still offer strong cash flow, solid returns, and better exit strategies.

But if you don’t understand how the tax side works – or you think this is still 2024 – you’ll get blindsided.

The Property Don doesn’t just manage properties.

We build profitable systems, track every pound in and out, and help landlords run these assets like the businesses they are.

📍 Want to stop guessing and start earning with clarity?

Book a call with Don. Let’s make sure you’re playing this game with your eyes open.