Buy To Let
Buy-to-let is an increasingly attractive investment in the UK and for many, bricks and mortar has a unique physical appeal that shares and investment funds just can't match.
But Buy-to-Let investing is subject to several taxes, whether you own a single property or 100.
There are four taxes that your investment in a Buy to Let property will possibly incur:
Capital Gains Tax
Stamp duty is a tax you pay when you buy a property in the UK. It's set in tiers depending on the price of the property and is payable on the full purchase price.
£0 - £125,000
£125,001 - £250,000
£250,001 - £500,000
£500,001 - £1,000,000
£1,000,001 - £2,000,000
For example: If you bought a property for £124,999 you'd pay no stamp duty. But if you bought a property for £125,001 you'd pay £1,250.01.
Stamp duty rates are no different if you are buying your own home, or a BTL property.
"Stamp duty is a one-off tax. That means that if you decide to rent out your home (because you can't sell it or you're moving in with a partner), you wouldn't have to pay it again as a buy-to-let landlord on the same property."
The income you receive as rent is taxable. You need to declare rent you receive as part of your Self Assessment tax return – the tax on your income is then charged in accordance with your income tax banding (20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate).
However, you can minimise the tax you have to pay by deducting certain "allowable expenses" from your taxable rental income. Allowable expenses include:
If you're in any way unsure, an accountant can help you make the most of your allowable deductions so that you don't pay more tax than you have to. And don't worry – accountant's fees are tax deductable too!
HM Revenue and Customs require you to keep a record of your income and expenses as a buy-to-let landlord for at least 6 years.
Capital gains tax is payable when you sell a buy-to-let property at a profit from when you bought it. It isn't payable if you make a loss.
You get an annual tax-free allowance of capital gains that you can make each tax year, before capital gains tax is charged. This allowance for tax year 2014/15 is £11,000.
If you have sold a buy-to-let property, you'll need to declare this on your Self Assessment tax return. Capital Gains Tax is charged at 18% or 28% of the profit (depending on the taxable income and total capital gains you've made over the year).
If you have made a loss in buy-to-let property sold in a previous year, you may be able to use this loss to reduce your capital gains bill. Similarly, you are able to deduct some expenses you've incurred in buying, selling or improving the property:
Not nice to think about, but very important to plan for, is inheritance tax. Your buy-to-let properties (or property) form part of your estate for inheritance tax purposes.
If an individual's estate exceeds £325,000 (or up to £650,000 for married couples or civil partners), inheritance tax is charged at 40% on everything above this threshold.
"A good accountant may be able to help you reduce your exposure to inheritance tax."
Guide Updated: 01/04/14
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.