Taxes Payable by Landlords & Investors - A Guide
Tweet |
Wed 10 Oct 2018
If you are a new or ‘accidental’ landlord, being aware of the various types of property tax can be, well, taxing. So here’s your handy guide to some of the most frequently occurring taxes.
Stamp duty land tax (SDLT)
Most landlords now know about the 3% surcharge on second properties – this is on top of the standard stamp duty, which is calculated according to the price of a property. The government has a useful stamp duty calculator which you can use to work out how much tax you will need to pay – and it must be paid within 30 days of you taking possession of the property.
Income tax
After your initial personal allowance of £11,850 (2018 -19), you must pay
tax on your profits from letting property, at a rate of between 20% and 45%, depending on your total income.
- The first £1,000 of a property you personally own is tax free
- Any annual profit from property over £2,500 must be declared on a self-assessment tax return
- For annual profit between £1,000 and £2,500, you should contact HMRC for advice.
Section 24, announced in the Summer Budget 2015, is a major change in the way landlords claim tax relief. In the past, 100% of the interest on any finance (such as the mortgage or other loans) could be offset against your earnings at your usual tax rate. But Section 24 is now being phased in, which means only a 20% tax credit is available by 2020/21 and:
- for the tax year 2017-18, you can offset 75% of your interest payments against earnings
- for the tax year 2018-19, you can offset 50% of your interest payments against earnings
- for the tax year 2019-20, you can offset 25% of your interest payments against earnings
- for the tax year 2020-21, only 20% of your interest payments will be able to be offset.
This could potentially push you in the higher tax bracket, if you are not already within it, so you should talk to an expert in landlord tax if this is the case.
Other allowances – such as agent fees, maintenance, business costs, insurance etc. – are unaffected by the change.
Changes to wear and tear allowance
The old ‘wear and tear allowance’ has been swapped for the new Replacement Domestic Item relief. When carpets, curtains, furnishings and any appliances you provide wear out, you may claim this relief, as long as you replace the items “like for like”. For anything which could be construed as an upgrade (e.g. a fridge freezer to replace a standard fridge), you can only claim relief on the amount you would have paid for a similar item.
Capital gains tax
Any profit you make on selling a property is considered a capital gain, regardless of how much equity you have. So if you bought a house for
£75,000 and are now selling it for £125,000, your capital gain is £50,000 and you can be taxed on this, minus your annual allowance of
£11,700 for the 2018-19 tax year, assuming you have not already
used it up on another property.
If you are registered for self-assessment, payment is due in the same timeframe as income tax, so if you sell now, capital gains tax will be due by 31st January 2020.
Losses can be deducted from gains made on other properties, or held over for up to four years which can help if, for example, you are planning to sell a property which will incur capital gains tax in the future.
There are other reliefs available too, such as if you have lived in the property, so it is definitely worth seeking advice from a property tax expert.
For more information on how to keep on top of tax changes for landlords and for advice on sound property investments, contact our property experts here at Brown & Cockerill.
News Archive
January 2021
“What should you spend time and money on when improving your property?”
November 2019
National Estate Agent Conference
April 2019
What is the difference between Outline and Full Planning Permission?
February 2019
Best Ways To Increase Your Rental Property's Energy Efficiency
January 2019
Shared Ownership - What is it?
October 2018
Taxes Payable by Landlords & Investors - A Guide
August 2018
We win GOLD for the 3rd year running.
May 2018
The Facts - Energy Performance Certificate (EPC)
February 2018
Relocation Experts Recognised at Brown & Cockerill Estate Agents
November 2017
Chancellor abolishes Stamp Duty for First-Time Buyers in England and Wales in his Budget
The Team Attends National Estate Agency Conference and Exhibition.
September 2017
Brown & Cockerill win Silver at National British Property Awards
It's Official - We are the Best in Rugby!
July 2017
The Pros and Cons of 'Online' Estate Agents
Top tips for reducing condensation
May 2017
The importance of your credit rating when applying for a mortgage
Thinking about selling but worried about the length of your lease?
April 2017
Tenant Referencing - what you need to consider
March 2017
How to Spot and Tackle Japanese Knotweed
February 2017
10 things to do before applying for a mortgage
HOUSING WHITE PAPER: The Key Points
January 2017
Woodworm Treatment - The ins and outs that you need to know
December 2016
Selling Your House? Don't Wait for the New Year!
August 2016
Brown & Cockerill Offer Clients a Relocation Agent Specialist
July 2016
Brown & Cockerill win GOLD for Best Estate Agent in RUGBY!
June 2016
Lettings: A Guide to Deposit Protection Schemes
Property Jargon Buster - a glossary of terms
May 2016
Thinking of Buying a Second Home? a guide to stamp duty changes.
April 2016
Rents Rising Across Most of the UK
March 2016
Brown & Cockerill Help Home-Movers to Celebrate!
February 2016
FEBRUARY is here which means it is the month of LOVE
This Year We Are Celebrating Our 20th Anniversary !
January 2016
Do your tenants have the Right to Rent?
December 2015
Buying or selling a property with asbestos?
Gazundering: A guide to what it means and how to avoid it!
November 2015
The Team Attends National Estate Agency Conference
View older stories >