Do you pay VAT on rental income, and can you claim it back on costs?

In England, VAT on rent is usually about the type of supply, not whether the landlord is an individual or a company. VAT is reserved to Westminster, so the VAT treatment is the same across England, Scotland, Wales and Northern Ireland.

Do you pay VAT on rental income?

You do not normally charge VAT on residential rental income because residential letting is an exempt supply, not a zero-rated or taxable supply. The VAT Act exemption covers “the grant of any interest in or right over land or of any licence to occupy land”, and HMRC’s guidance says land and property grants are “normally exempt from VAT”, so ordinary residential rent is exempt from VAT across the UK. That means the tenant is not charged 20% VAT on rent, but it also means the landlord normally cannot reclaim VAT on costs connected with that exempt letting. A rental property is residential for this purpose when the supply is the letting of a dwelling for occupation, not a commercial letting or holiday accommodation. Commercial property is different because an owner may be able to opt to tax; residential dwellings are the hard stop.

Does a limited company pay VAT on rental income?

A limited company does not normally charge VAT on residential rental income, because the VAT exemption follows the nature of the letting, not the landlord’s legal form. HMRC defines a taxable person as “an individual, firm, company and so on who is, or is required to be, registered for VAT”, so a company landlord and an individual landlord apply the same VAT analysis to residential rent. The £90,000 VAT registration threshold matters only for taxable turnover; exempt residential rent is not taxable turnover that forces registration. This is where many older summaries are stale: £85,000 was replaced by £90,000 from 1 April 2024. A company with other taxable activity may still be VAT-registered, but VAT registration does not convert exempt residential rent into VATable rent. The practical answer is simple: putting buy-to-let property into a limited company changes corporation tax and finance questions, not the basic VAT exemption on residential rent.

What is the difference between exempt, zero-rated and outside the scope of VAT?

Exempt means no VAT is charged and input VAT is normally not recoverable; zero-rated means VAT is charged at 0% and input VAT can normally be recovered; outside the scope means the supply is not within the UK VAT system at all. Residential rent is exempt, not “no VAT” in the casual sense and not zero-rated. HMRC states that exempt supplies have “no tax” payable but the supplier “cannot normally recover any of the VAT on their own expenses”, while zero-rated supplies remain taxable supplies “including the right” to recover VAT on business expenditure. Outside-the-scope items are different again: they are not exempt or zero-rated, because they are not supplies within VAT in the first place. In property, the common trap is assuming all VAT-free housing is the same: ordinary residential letting is exempt, while the first sale of a newly built dwelling by the builder is zero-rated.

Can a landlord claim VAT back on repairs and other costs?

A residential landlord normally cannot claim VAT back on repairs, agent fees, consultancy fees or other letting costs because the option to tax that lets commercial landlords recover VAT is switched off by law for buildings designed or adapted as dwellings. The governing provision is VATA 1994 Schedule 10 paragraph 5, which says an option to tax has no effect for a building or part of a building designed or adapted and intended for dwelling use; advice citing paragraph 2(2) for that rule is wrong. The underlying residential letting is also exempt under Schedule 9, so there is no output VAT on the rent and normally no input-tax recovery on the associated costs. A VAT-registered builder, managing agent or consultant may still charge 20% VAT on their invoice, but for an exempt residential letting that VAT is usually part of the landlord’s cost, not something recoverable through a VAT return.

Can you reclaim VAT on a holiday let?

You can reclaim VAT on a holiday let only if the holiday accommodation business is VAT-registered, because holiday accommodation is standard-rated rather than exempt residential rent. The land exemption expressly excludes “holiday accommodation”, and HMRC says anyone supplying holiday accommodation “must account for VAT” at the standard rate on charges made, regardless of the description of those charges. Registration becomes compulsory when taxable turnover goes over £90,000 in a rolling 12-month period; below that, VAT registration is usually voluntary, so reclaiming VAT has to be weighed against charging VAT to guests. Once registered, input VAT on costs that relate to the taxable holiday-let business — for example repairs, cleaning, furnishings and professional fees — is normally recoverable under the usual VAT rules. This is the opposite of an ordinary residential tenancy, where the rent is exempt and the repair VAT is usually stuck.

Do you pay VAT when you buy a house?

You do not normally pay VAT when you buy a house: a new dwelling’s first sale is zero-rated, and the sale of an existing dwelling is generally exempt. Zero-rated does not mean VAT is added at 20%; it means the VAT rate is 0%, which is why a buyer does not see VAT on the purchase price of a new home. Existing residential property sits under the general land exemption, so again VAT is not added to the price in the usual residential purchase. The tax buyers usually think of instead is not VAT but property transaction tax: in England and Northern Ireland that is Stamp Duty Land Tax, which applies when you buy land or property over a threshold. Scotland has Land and Buildings Transaction Tax, and Wales has Land Transaction Tax, so the VAT answer is UK-wide but the purchase-tax label is not.

Last reviewed August 2026.

Sources

• Value Added Tax Act 1994 Schedule 9, Group 1, Item 1 — “1The grant of any interest in or right over land or of any licence to occupy land, or, in relation to land in Scotland, any personal right to call for or be granted any such interest or right, other than—” Source
• HMRC VAT Notice 742 — “The grant, assignment or surrender of an interest in, right over or licence to occupy land is normally exempt from VAT.” Source
• HMRC VAT Notice 700 — “Some supplies are exempt from VAT, which means that no tax is payable — but, equally, the person making the supply cannot normally recover any of the VAT on their own expenses.” Source
• HMRC VAT Notice 742A — “Once you have opted to tax all the supplies you make of your interest in the land or buildings will normally be standard-rated, and you will normally be able to recover any VAT you incur in making those supplies.” Source
• HMRC VAT Notice 700 — “A taxable person is an individual, firm, company and so on who is, or is required to be, registered for VAT.” Source
• Value Added Tax (Increase of Registration Limits) Order 2024 — “(a)in paragraph 1(1)(a), (1)(b), (2)(a) and (2)(b), for “£85,000” substitute “£90,000”;” Source
• HMRC VAT Notice 700 — “Zero-rated supplies are treated as taxable supplies in all other respects, including the right of the person making the supply to recover the VAT on their own business expenditure (subject to certain restrictions — see paragraph 4.6).” Source
• HMRC VAT Notice 700 — “Supplies are outside the scope of UK VAT if any of the following apply:” Source
• HMRC VAT Land and Property Manual VATLP07300 — “Note: that zero rating applies to the first grant of a major interest, by person constructing, in dwellings, relevant charitable and communal residential buildings.” Source
• Value Added Tax Act 1994 Schedule 10 paragraph 5 — “5.(1)An option to tax has no effect in relation to any grant in relation to a building or part of a building if the building or part of the building is designed or adapted, and is intended, for use—” Source
• Value Added Tax Act 1994 Schedule 9, Group 1, Item 1(e) — “(e)the grant of any interest in, right over or licence to occupy holiday accommodation;” Source
• HMRC VAT Notice 709/3 — “If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at either the standard rate (or the temporary reduced rate) on any charges that you make regardless of the length of occupation or description of the charges.” Source
• GOV.UK VAT registration — “You must register if your total taxable turnover for the last 12 months goes over £90,000.” Source
• Value Added Tax Act 1994 Schedule 8, Group 5, Item 1 — “1The first grant by a person—” Source
• GOV.UK Stamp Duty Land Tax — “You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland.” Source