Over the last year the number of buy to let mortgages in the UK has risen, partly as new investors enter the property market and as professional landlords look to expand their portfolios. Regardless of the number of buy to let properties you own it can always help to be aware of the tax implications of owning property and what you can do to save when completing a tax return each year. There are a number of things a landlord will need to bear in mind in regards to their property and tax.
Stamp Duty Land Tax
As with the purchase of any property, stamp duty land tax will be applicable when you purchase a buy to let property. Stamp duty varies depending on the price of the property, at present the tax rates, as a percentage of the purchase price, are as follows:
|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%|
There are a number of tax savings that landlords can make on their tax returns each year. In order to do this, it is important to be aware of the difference between revenue and capital expenses. Revenue expenses can be deducted from your rental income when completing your tax return but capital expenses cannot and will only be taken into account when the property is sold.
Capital expenses include the cost of the land, property and any improvements or alterations that are made to it. Tax relief can be claimed on revenue expenses as long as the costs are only incurred as part of the rental business. Landlords can typically look at claiming back the following:
- Any professional fees incurred in the course of letting out the property, this includes letting agency fees, administrative costs, accountancy expenses and any legal fees
- Any bills paid by you, as the landlord, such as water rates, council tax, gas and electricity
- Insurance fees required for the purpose of letting the property such as rent guarantee insurance, building and contents insurance and any insurance claim fees
- Any travel expenses incurred in the course of the rental business
- All mortgage interest charges
If you own the property jointly it is also possible to make savings there. Owning a property jointly with a spouse or partner means that the income from the rental property will be split between both of you. Effectively this allows for two personal allowances to be claimed against the rental income which will also reduce your tax bill.
You may also find that you make a loss on your rental property however it is possible to take these losses forward to the next year and continue to do so until you make a profit, at which point these can be offset against the profits. You should notify HMRC of any losses on your tax return to benefit from this.
Additionally if you rent a property out fully furnished you can claim this expense under something known as the wear and tear allowance. This allows you to claim up to 10 percent of the rental income each year as a cost of maintaining a furnished property.
Capital Gains Tax
As an investor, when it comes to selling any of your rental properties you will also be subject to capital gains tax. This doesn’t apply when selling a property which is your main residence however it must be paid when selling a buy to let property at a profit. Since April 2008 this has been charged at a flat rate of 18 percent.
Whether you’re new to the rental business or if you’ve been making investments for years it can never hurt to be aware of where you can make savings and what taxes will be applicable to you. A good accountant will always be able to assist you in this and provide all the advice that you’ll need to make the most of your rental business when it comes to tax.
Written by Sarah Male – Urban Sales and Lettings
Any capital improvements made to a property during a tenancy, eg New boiler etc