Property tax for landlords & investors: Stamp Duty (SDLT) - Tax on completion of a house purchase The first Landlord tax/property tax you will encounter is Stamp Duty (SDLT). This is a purchase cost for a residential buy-to-let or commercial property. There are two types of SDLT that landlords need to be aware of on residential buy-to-let properties – A banded rate of SDLT that starts from £150,000 – A 3% SDLT higher rate on properties exceeding £40,000 and is either the second purchase in personal names or a limited company There is one SDLT type for landlords purchasing a commercial (non-residential) property. – A banded rate of SDLT that starts from £150,000 You need to be aware of Stamp Duty taxes before you complete on a house purchase. Buy-to-let VAT VAT: buy to let residential properties Landlords/investors may not be initially concerned about VAT when it comes to buy-to-lets. This is understandable. Buy-to-let residential rent is VAT exempt. No VAT is to be charged on residential property rents. This also means that landlords cannot reclaim VAT on their expenses. Landlords who buy materials and labour for refurbishment may pay 20% VAT. It is possible to reduce this VAT on different property types from 20% to 5%. VAT: Commercial property VAT may be charged on the commercial property if it has opted to tax. This means that the seller must charge 20% VAT. It is possible to reduce this VAT from 20% to 0%, depending on your intention. 20% VAT will be charged on commercial property rents if you have opted to tax the property. You will be able to reclaim VAT on any property-related costs. This will be an advantage to you but maybe a disadvantage to your tenants if they cannot reclaim the VAT you have charged on their commercial property rent. The different types of buy-to-let tax can be confusing. work with a property accountant to help you work through them all. Property: Income & corporation tax Investors & landlords that make profits on their investments will pay property tax. Income Tax for landlords that own property in their name Property profits will be shown on their self-assessment. The amount of profit depends on their total income. The rates start from 0% up to 45%. The 45% I just mentioned could actually be 60%+. Why would property tax be more than 45% (as it is for additional rate)? Section 24 mortgage interest relief cap means that residential buy-to-let mortgage. As an example £10,000 property rental income £4,000 mortgage interest costs £3,000 other property expenses £3,000 profit HMRC will place 40% income tax for high rate taxpayers on £7,000 (£10,000 property rental income less £3,000 other property expenses). The payable amount would be £2,800. HMRC will give a 20% reducer on the buy-to-let mortgage interest costs. That means HMRC will give £800 as a reducer (£4,000 buy-to-let mortgage interest costs). £2,800 40% as shown above (£800) 20% tax reducer on the mortgage interest costs £2,000 income tax on the property profits £2,000 on profits of £3,000 is 67%. Our property accountants have seen landlords make a loss when they refinance their properties, resulting in greater mortgage interest costs. HMRC use a fiscal year for property financials to be declared and paid. The fiscal year starts on 6th April and ends the following 5th April. Self-assessment returns must be submitted and paid on 31st January following 6th April. Corporation Tax for landlords that own property in their limited company Landlords that own buy-to-lets may wish to think about using a property investment limited company going forwards. One of the reasons for using a limited company over owning properties in your name is Section 24, as shown above. Section 24 mortgage interest relief cap only affects landlords that own buy-to-let properties in their name. Section 24 does not affect property investment limited companies. We also need to consider the top tax rate of the limited company. HMRC have paced a value after 1st April 2023 at an effective rate of 26.5% compared to 45% income tax on self-assessment. There is greater flexibility in offsetting costs in a limited company than it is when a property is owned in their personal name. It is possible for you to transfer properties into a limited company. Buy-to-let: CGT Landlords selling properties in their name will pay CGT if a gain is made. The CGT rate depends on whether the property is residential or commercial (non-residential). Landlords selling the residential property will pay: – 0% CGT rate is charged if the disposal is less than their annual CGT of £6,000 – 18% CGT rate for basic-rate taxpayers – 28% CGT rate for high-rate taxpayers Landlords selling the non-residential/commercial property will pay: – 0% CGT rate is charged if the disposal is less than their annual CGT of £6,000 – 10% CGT rate for basic-rate taxpayers – 20% CGT rate for high-rate taxpayers CGT on residential property must be reported to HMRC within 60 days. IHT Inheritance Tax as a stealth property tax affects many landlords. IHT is charged on net assets exceeding £325,000. Net assets mean the gross asset value of an asset less debts/loans/liabilities. For example: £600,000 home value £200,000 residential mortgage balance £400,000 net asset value The £400,000 net asset value exceeds £325,000 if one person owned it and had no other assets. Fortuitously there is another IHT reduction in the form of Residential Nil Rate Band (RNRB) of up to £175,000. This example produced no IHT liabilities because the £400,000 is initially reduced by the £325,000 IHT lifetime allowance and a further £75,000 Residential Nil Rate Band (RNRB). Most landlords will buy properties over a long period of time. This helps them build wealth for their families. Sadly this also introduces a 40% IHT liability on the death of their assets.
Property tax for landlords & investors: Stamp Duty (SDLT) - Tax on completion of a house purchase The first Landlord tax/property tax you will encounter is Stamp Duty (SDLT). This is a purchase cost for a residential buy-to-let or commercial property. There are two types of SDLT that landlords need to be aware of on residential buy-to-let properties – A banded rate of SDLT that starts from £150,000 – A 3% SDLT higher rate on properties exceeding £40,000 and is either the second purchase in personal names or a limited company There is one SDLT type for landlords purchasing a commercial (non-residential) property. – A banded rate of SDLT that starts from £150,000 You need to be aware of Stamp Duty taxes before you complete on a house purchase. Buy-to-let VAT VAT: buy to let residential properties Landlords/investors may not be initially concerned about VAT when it comes to buy-to-lets. This is understandable. Buy-to-let residential rent is VAT exempt. No VAT is to be charged on residential property rents. This also means that landlords cannot reclaim VAT on their expenses. Landlords who buy materials and labour for refurbishment may pay 20% VAT. It is possible to reduce this VAT on different property types from 20% to 5%. VAT: Commercial property VAT may be charged on the commercial property if it has opted to tax. This means that the seller must charge 20% VAT. It is possible to reduce this VAT from 20% to 0%, depending on your intention. 20% VAT will be charged on commercial property rents if you have opted to tax the property. You will be able to reclaim VAT on any property-related costs. This will be an advantage to you but maybe a disadvantage to your tenants if they cannot reclaim the VAT you have charged on their commercial property rent. The different types of buy-to-let tax can be confusing. work with a property accountant to help you work through them all. Property: Income & corporation tax Investors & landlords that make profits on their investments will pay property tax. Income Tax for landlords that own property in their name Property profits will be shown on their self-assessment. The amount of profit depends on their total income. The rates start from 0% up to 45%. The 45% I just mentioned could actually be 60%+. Why would property tax be more than 45% (as it is for additional rate)? Section 24 mortgage interest relief cap means that residential buy-to-let mortgage. As an example £10,000 property rental income £4,000 mortgage interest costs £3,000 other property expenses £3,000 profit HMRC will place 40% income tax for high rate taxpayers on £7,000 (£10,000 property rental income less £3,000 other property expenses). The payable amount would be £2,800. HMRC will give a 20% reducer on the buy-to-let mortgage interest costs. That means HMRC will give £800 as a reducer (£4,000 buy-to-let mortgage interest costs). £2,800 40% as shown above (£800) 20% tax reducer on the mortgage interest costs £2,000 income tax on the property profits £2,000 on profits of £3,000 is 67%. Our property accountants have seen landlords make a loss when they refinance their properties, resulting in greater mortgage interest costs. HMRC use a fiscal year for property financials to be declared and paid. The fiscal year starts on 6th April and ends the following 5th April. Self-assessment returns must be submitted and paid on 31st January following 6th April. Corporation Tax for landlords that own property in their limited company Landlords that own buy-to-lets may wish to think about using a property investment limited company going forwards. One of the reasons for using a limited company over owning properties in your name is Section 24, as shown above. Section 24 mortgage interest relief cap only affects landlords that own buy-to-let properties in their name. Section 24 does not affect property investment limited companies. We also need to consider the top tax rate of the limited company. HMRC have paced a value after 1st April 2023 at an effective rate of 26.5% compared to 45% income tax on self-assessment. There is greater flexibility in offsetting costs in a limited company than it is when a property is owned in their personal name. It is possible for you to transfer properties into a limited company. Buy-to-let: CGT Landlords selling properties in their name will pay CGT if a gain is made. The CGT rate depends on whether the property is residential or commercial (non-residential). Landlords selling the residential property will pay: – 0% CGT rate is charged if the disposal is less than their annual CGT of £6,000 – 18% CGT rate for basic-rate taxpayers – 28% CGT rate for high-rate taxpayers Landlords selling the non-residential/commercial property will pay: – 0% CGT rate is charged if the disposal is less than their annual CGT of £6,000 – 10% CGT rate for basic-rate taxpayers – 20% CGT rate for high-rate taxpayers CGT on residential property must be reported to HMRC within 60 days. IHT Inheritance Tax as a stealth property tax affects many landlords. IHT is charged on net assets exceeding £325,000. Net assets mean the gross asset value of an asset less debts/loans/liabilities. For example: £600,000 home value £200,000 residential mortgage balance £400,000 net asset value The £400,000 net asset value exceeds £325,000 if one person owned it and had no other assets. Fortuitously there is another IHT reduction in the form of Residential Nil Rate Band (RNRB) of up to £175,000. This example produced no IHT liabilities because the £400,000 is initially reduced by the £325,000 IHT lifetime allowance and a further £75,000 Residential Nil Rate Band (RNRB). Most landlords will buy properties over a long period of time. This helps them build wealth for their families. Sadly this also introduces a 40% IHT liability on the death of their assets.
