Landlord Tax Guide Scotland — Rental Income, LBTT & CGT

Taxes That Apply to Landlords in Scotland

Scottish landlords face a unique tax landscape that differs from the rest of the UK in several important ways. Understanding your tax obligations is essential to managing your property investments efficiently and avoiding costly HMRC penalties.

Rental Income Tax

All rental income must be declared to HMRC on your annual self-assessment tax return. You pay Income Tax on your rental profits (income minus allowable expenses) at your marginal rate — 20%, 40% or 45% depending on your total income.

Allowable rental expenses include:

• Letting agent fees
• Repairs and maintenance (not improvements)
• Buildings and contents insurance
• Ground rent and service charges
• Council tax and utilities (if paid by you)
• Accountancy fees
• Landlord licensing fees
• Advertising costs for finding tenants

Section 24 — Mortgage Interest Restriction

Since April 2020, individual landlords can no longer deduct mortgage interest from rental income in full. Instead, you receive a 20% tax credit on finance costs. This significantly increases the tax bill for higher-rate taxpayer landlords. For example, a landlord paying £10,000 mortgage interest only saves £2,000 in tax (20% credit) rather than £4,000 (40% deduction). Planning around this restriction is one of the most important pieces of advice we give Scottish landlords.

LBTT — Land and Buildings Transaction Tax in Scotland

Scotland uses LBTT instead of Stamp Duty Land Tax. Rates for residential property purchases in 2024/25:

The Additional Dwelling Supplement (ADS) of 6% applies to all purchases of second homes and buy-to-let properties in Scotland, on top of the standard LBTT rates.

Capital Gains Tax on Rental Property in Scotland

When you sell a rental property, Capital Gains Tax (CGT) applies to the gain above the annual exempt amount (£3,000 for 2024/25). The CGT rate on residential property is 18% for basic rate taxpayers and 24% for higher rate taxpayers. You must report and pay CGT on UK residential property within 60 days of completion — failure to do so results in penalties and interest charges.