There are two types of tax to consider

– Income tax on profits if owned in their name

– Corporation tax on profits if held in a limited company

Profits at income tax rates example

£5,000 income

£3,000 refurb costs

£2,000 profit to be taxed

The £2,000 tax may be subject to income tax at different rates, as shown below

0% if the person earns less than £13,570 (£12,570 personal allowances and £1,000 property profits allowance)

20% income tax rate for anyone who typically has £37,700 taxable income above the stated personal allowance. Ignoring the £1,000 property profits allowances, a 20% income tax liability is charged on someone earning up to £50,270

40% income tax rate for anyone earning more than £50,270 up to £150,000

45% income tax rate for anyone earning more than £150,000

We can see how much tax would be charged as follows

£0 – 0% income tax rate X £2,000 profits

£400 – 20% income tax rate X £2,000 profits

£800 – 40% income tax rate X £2,000 profits

£900 – 45% income tax rate X £2,000 profits

Profits at corporate tax rates example

Corporation tax is a fixed rate of 19%. The maths is easy on this one

£380 – 19% corporation tax rate on £2,000 profits

[Rates and allowances for 2022/23]