A guide to tax for landlords
Getting your tax arrangements absolutely right is a crucial part of buy-to-let investment. If you fail to get to grips with the rules, you could find yourself landed with sudden and unexpected bills, or even end up in hot water with the authorities.
It’s also important you understand what taxes must be paid and when because these are costs that will affect the returns on your buy-to-let investments.
Taxes that landlords may have to pay
Find out how much tax you’d need to pay on your buy to let property with our buy to let stamp duty calculator.
Income tax is payable on rental income you receive – the rate at which you have to pay will depend on how much rent you’re earning, as well as how much other income you have. You’re required to declare your total rental income on a self assessment tax return each year. The form also gives you an opportunity to disclose costs such as mortgage interest, letting agency fees and legal bills, which you can deduct from your income. Maintenance costs may also be allowable – but for repairs rather than improvements.
Capital gains tax
While any profit on the sale of your main residential home is tax-free, there may be capital gains tax to pay on profits from the sale of buy-to-let properties. Capital gains tax is currently payable at either 18 per cent or 28 per cent, depending on your total taxable income, but everyone is allowed a certain amount of gains each year before tax becomes payable. The capital gains tax allowance in the 2015-16 tax year is £11,100.
Just like everything else you own, any buy-to-let property you own (the value minus the outstanding mortgage on the property) will count towards the value of your estate for inheritance tax purposes. Inheritance tax is payable at 40% on the value of an estate above a set threshold.
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