Financial

Buy to Let properties can be highly lucrative for property investors, particularly in areas that produce high yields.

However, there are several buy-to-let taxes that prospective landlords should be aware of when investing in UK property. For first-time property investors, this may be something you’ve not come across before and leave you with many unanswered questions.

As property investment experts with industry knowledge, we’ve put together this helpful breakdown of some of the different types of property taxes.

Outlined here are the three main ones – Capital Gains Tax, Income Tax and Stamp Duty Land Tax.

Capital gains tax

If you choose to sell your buy-to-let property, you will need to pay Capital Gains Tax (CGT) on any profit that takes you over your annual tax-free capital gains allowance, which is currently:

Type 2020-2021
CGT allowance for an individual £12,300
Couple’s allowance (married or in a civil partnership only) £24,600

Basic-rate taxpayers will pay 18% on any profits they make when selling a buy-to-let property. This rate is set at 28% for higher or additional-rate taxpayers.

You will only be required to pay on the gains you make from the sale and not the amount you sell it for.  To calculate your potential gains, you can do so using the following formula:

Sale Price – Purchase Price – costs (broker fees, stamp duty, home improvements) = Gains

It’s worth noting that you may be able to reduce the total amount due by off setting your costs.

Income tax

When you rent out your buy-to-let property to tenants, you will need to pay tax on the rental income. How much you pay will depend on your income tax band.

The total amount payable can be significantly reduced by offsetting what is referred to as ‘allowable expenses’.

Band Taxable income Tax rate
Personal allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £150,000 40%
Additional rate over £150,000 45%

Mortgage interest tax relief

Previously, buy-to-let landlords could offset 100% of their mortgage payments against their rental income – meaning a smaller income tax bill.

However, in 2017, new legislation came in that phased out this tax relief. Now, buy-to-let landlords will receive a 20% tax credit, at the basic 20% rate, for their mortgage interest.

It is worth noting that this change in tax relief only impacts private landlords. If it’s a company that owns the property, they will be able to declare rental income after deducting the mortgage.

How does this work in practice? 

A landlord receiving £12,000 a year in rent and paying £10,000 as mortgage interest payments, will still pay tax on the £12,000 – depending on their tax band.

Stamp duty and land tax

If you purchase a property or a piece of land in England, you’ll be required to pay Stamp Duty Land Tax (SDLT) if the property is over a certain price. Stamp duty is always due within 14 days of completion.

Stamp duty is a progressive tax, so you will pay different stamp duty rates on different parts of the property value.

A threshold dictates where SDLT begins to apply. The current thresholds are:

  • £125,000 for Residential Properties
  • £150,000 for non-residential land and properties

Additional properties include Buy-to-let properties and second homes.

A 2% stamp duty surcharge for overseas buyers also applies for non-resident buyers.

Purchase price Rate on Main Residence Rate for additional properties
Up to £125,000 0% 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1,500,000 10% 13%
£1,500,001 + 12% 15%

Stamp duty calculator

One of the most common questions property investors ask is: ‘How much stamp duty do I need to pay?’

You can use our calculator, which will help you determine the total amount owed.

Are you and everyone involved in the property purchase, considered to be first time buyers?

Is this residential property purchase a second home, an additional property, or a buy to let property?

Based on a purchase price of £0. Your total stamp duty liability tax would be:

Total Stamp Duty
£0.00

Breakdown

Enter the purchase price of your property in the stamp duty calculator above to see a breakdown here.

Range Rate Amount
£0 - £125,000 0% 0
£125,001 - £250,000 2% 0
£250,001 - £925,000 5% 0
£925,001 - £1,500,000 10% 0
£1,500,001 + 12% 0

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