Holding Costs at a Glance: Income Tax, Ground Rent, Council Tax, Service Charges, Letting Fees and Property Insurance
Holding a UK property, whether you let it out or live in it yourself, generates ongoing running costs. These include a flat’s service charge, the personal income tax and letting-agent fee generated by letting the property out, and ground rent on a leasehold property. All of these are necessary costs of holding a UK property, and forgetting some of them can leave the owner directly out of pocket. Holding costs also feed straight into an investor’s returns, so anyone with a mortgage should be especially careful not to let them disrupt cash flow. Whether you are an investor or an owner-occupier, it pays to understand these costs in full. This article covers the running costs of holding a UK property — personal income tax, ground rent on a leasehold property, council tax for an owner-occupier, and more.
Personal Income Tax on Rental Income
Rental income earned from letting a UK property is subject to UK personal income tax. UK income tax is progressive, and other expenses — maintenance, letting-agent fees and so on — can be deducted when calculating it. A landlord who is a UK resident is entitled to the £12,570 personal allowance. Income above £12,570 up to £50,270 is taxed at 20%. The current personal income tax rates for England and Northern Ireland are set out below.
Current personal income tax rates
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Below £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
In September 2022, then-Chancellor Kwasi Kwarteng announced that the additional rate band would be removed the following tax year. That announcement was reversed within weeks and never took effect: the 45% additional rate has continued to apply every year since, including the current 2026/27 tax year, now charged on income over £125,140 (down from £150,000 before April 2023).
Non-UK residents do not receive the personal allowance and can refer to the table below:
| Band | Taxable income | Rate |
|---|---|---|
| Basic rate | Below £50,270 | 20% |
| Higher rate | £50,270 – £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
Official UK tax rates: https://www.gov.uk/income-tax-rates
UK Council Tax
England is currently divided into roughly 333 council areas (a figure that is changing as local government reorganisation continues through 2026-2027), and each council charges council tax on every property within its area to fund local services. Every adult (18 or over) living in a property must pay it. So if you are an investor, council tax is usually the tenant’s responsibility, but if the property has no tenant or is owner-occupied, the owner pays. An unoccupied, vacant property can apply for a discount. Each council area has its own council tax charges, so owners should check with the local council where the property sits. A council tax bill is generally accepted in the UK as reliable proof of address, so owners who need one should keep it safe.
Official UK council tax information: https://www.gov.uk/council-tax/who-has-to-pay
Ground Rent
UK properties fall into two types of tenure: freehold and leasehold. If your property is leasehold, you may need to pay an annual charge to the freeholder (the freehold owner) — usually called ground rent. Note, though, that if you pay ground rent to a landlord, you can ask the landlord for a summary showing how the charge was calculated and what it was spent on, and you are entitled to see any documents supporting that summary, such as receipts. The landlord is legally required to provide this information — if they refuse, it is a criminal offense.
Official UK information on leasehold property: https://www.gov.uk/leasehold-property/service-charges-and-other-expenses
Service Charges, Letting Fees and Property Insurance for Flats
If you own a flat, a management company usually handles the building’s day-to-day affairs, and owners pay a monthly service charge for this. Similarly, if an owner instructs an agent to manage the letting, a letting fee applies, typically around 10% of the monthly rent; if the unit is not let, this fee generally does not apply, though the details depend on the letting agent’s own terms. Property insurance is not compulsory either, but if a mortgage is involved, the lender may require the owner to buy buildings insurance; if the property is let, the tenancy may require the owner to hold contents/property insurance.
Summary
Holding a UK property looks like it comes with plenty of costs, but in practice, few of them are strictly compulsory. Income tax, for instance, is a cost for the investor-landlord, while council tax is a cost for whoever occupies the property — so there is no need to worry that these various costs will drag your return down dramatically, or ask Zagdim.
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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