17
Jan 13

Tax implications of owning and renting property

According to the Council of Mortgage Lenders the number of buy to let mortgages has risen by 250,000 since 2008 with the figure now standing at 1.4 million. When investing in a buy to let property there are a number of expenses that a potential landlord will need to be aware of as investing in a buy to let property differs substantially from purchasing and owning your own home.

Stamp Duty Land Tax

Stamp duty land tax is the first of the factors which you will need to consider. Any property purchased in the UK, regardless of whether it is for your personal use or an investment property, will incur stamp duty land tax if it is over a certain price threshold. The rate of this tax will depend on the price of the property, if it is for residential purposes and whether it is in a disadvantaged area. At present the tax rates are as follows and are a percentage of the purchase price.
 

Purchase price/lease premium or transfer value

SDLT rate

Up to £125,000

Zero

Over £125,000 to £250,000

1%

Over £250,000 to £500,000

3%

Over £500,000 to £1 million

4%

Over £1 million to £2 million

5%

Over £2 million from 22 March 2012

7%

Over £2 million (purchased by certain persons including corporate bodies) from 21 March 2012

15%



Income Tax

With a buy to let property, any rent you receive from your tenants will be treated as income and taxed accordingly, however there are some expenses which you can offset against the taxable rental income when completing a tax return for your buy to let income.

The first of these is mortgage interest payments. Buy to let landlords are able to deduct any mortgage interest as a business cost and on average will save £1,400 per property each year. There are also a number of other expenses which landlords may incur in the course of letting out a property which may also be deducted; among these are letting agent fees, legal fees and accountant fees. Any landlord’s insurance can also be deducted from your rental profits.

It is also possible to claim maintenance costs as allowable expenses – however, adding any new facilities and any improvements to the property cannot be claimed. During void periods when a landlord will be liable for utilities and council tax, this expenditure may also be claimed as a business expense.

Capital Gains Tax

The final tax a landlord is likely to encounter is capital gains tax. This is not something that will be encountered when selling a property which is your main home, it will however be incurred when selling a buy to let property.

Capital gains tax is payable when you sell a buy to let property at a profit, since April 2008 this has been charged at a flat rate of 18% for any gains you make over the annual personal threshold.
When looking to invest in buy to let property for the first time it is important to consider all the additional aspects of expenses and taxes that may be incurred in comparison to purchasing a property for your personal residential use. Whilst these are generally covered by stamp duty land tax, income tax and capital gains tax it is always important to seek additional advice from a solicitor or accountant to ensure you are fully aware of all possible tax implications when investing in property.

Written by Urban Sales and Lettings Nationwide Online Estate Agents



 

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