Hendon Buy To Let Investors Tax Guide

There are four different types of taxes that you should be aware of and take the time to understand when buying a property to let:

  • Stamp Duty
  • Income Tax
  • Capital Gains Tax
  • Inheritance Tax

These taxes will apply whether you own a single property or want to build your own portfolio. Any costs associated with taking loan finance is tax deductible and arrangement fees can also be claimed back that year. One of the benefits of an interest-only mortgage means your mortgage repayments will be tax deductible.

Stamp Duty

This is a tax that everyone has to pay regardless of what kind of residential property you purchase. Stamp duty is categorised in price brackets and dependant on final purchase price of the property, which will determine the stamp duty rate. Stamp Duty is a one-off tax that you pay at the time of purchase.

Income Tax

As a landlord you have financial responsibilities and you will have to pay Income Tax on your rental income. You will need to declare any rent you receive in your Self-Assessment tax return, and your tax will then be calculated depending on your income tax banding.

Allowable expenses can include:

  • Interest on Buy-to-Let mortgage payments
  • Maintenance costs
  • Letting agency fees
  • Buildings and contents insurance premiums
  • Council Tax - if paid by you
  • Utility bills - if paid by you

Your accountant will be able to advise on the allowable deductions and answer any questions you might have. This way you can make sure you don't pay more tax than you have to.

HMRC require you to keep a record of your income and expenses as a landlord for a minimum of six years.

Capital Gains Tax

Capital Gains Tax is only payable on the profit you make when you sell your property. There is an annual tax-free allowance of capital gains and you would only pay tax on anything over that allowance. Capital Gains Tax is charged at 18% or 28% of the profit, calculated on your taxable income and the total capital gains you've made over the year. If you sell a Buy-to-Let property you will need to declare this on your Self-Assessment tax return. The amount of Capital Gains Tax you must pay will be worked out automatically by HMRC.

Inheritance Tax

No one likes to think about it, but it’s very important to plan for Inheritance Tax. A Buy-to-Let property will form part of your estate and be included as part of your assets when working out Inheritance Tax.

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