Buy-to-let landlords
Whether you have a single property or a more substantial portfolio, whether you intended to be a landlord or unintentionally become one after an inheritance, there are typically three tax points during your property ownership.
Becoming a landlord
For most, the first step is purchasing your buy-to-let property. At this stage you will be faced with paying Stamp Duty Land Tax (SDLT) in England and Northern Ireland, Land & Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales.
If after purchasing your buy-to-let property you then own two or more residential properties, you will have to pay a surcharge on top of the normal stamp rates. This is 3% above the SDLT and LTT rates and 4% above the LBTT rates.
Where a property passes to you via someone’s Will, then you would acquire that property after Inheritance Tax (IHT) has been assessed on the deceased individual’s estate.
Renting
Once your property is let you will of course need to declare the rents to HMRC.
Income Tax is payable on the rents received after deducting allowable expenses such as agent letting fees, insurance and repairs. Alternatively, you could claim the £1,000 property allowance.
If you have taken out a mortgage to fund the purchase, you are able to claim relief for the interest only – capital repayments are not deductible.
The rules for claiming mortgage interest changed from April 2017 when the gradual restriction of relief for finance costs, including mortgage interest, began. For 2019/20, 25% of the finance costs are fully deductible from the rental income. The remaining 75% is given as a basic rate reduction against your tax liability for the year.
For 2020/21 onwards, finance costs will not be directly deductible from rental income, the full amount instead being claimed as a basic rate reduction.
Separate rules apply to renting a room in your own home, providing a Furnished Holiday Let or if you use a partnership or company for your letting business.
Selling your property
If you decide to sell a property, then you may face a Capital Gains Tax (CGT) bill.
CGT is payable on the difference between the sale proceeds and the original cost of the property. Where a property has been improved then these capital costs may be available to reduce the value of the gain.
The CGT annual exemption means the first part of the gain is tax free – £12,000 for 2019/20. The resulting gain is taxed at the higher residential rates of 18% for any gain falling within the basic rate band and 28% for the remaining gain above this.
Our blog article 'Property Matters: Capital Gains Tax Basics' has more detail on the tax implications of selling a residential property.
If you decide to hold on to the property, it could eventually be subject to IHT on the event of your death. The property would form part of your death estate, alongside your other assets and liabilities, with your executors determining what tax is payable.
How can we help?
At Fairfields Tax we can help you with each step of your journey as a buy-to-let landlord.
Please do contact us for a free, no obligation quote.
コメント