If you are a landlord or property investor in the UK, it is important that you keep up to date with the latest tax changes and legislation surrounding buy-to-let properties.
When buying a property in the UK, you need to make sure that you are prepared for all of the potential taxes involved, especially when you buy a property as an investment.
Here we list the current rules around landlord taxes and the most recent changes for property investors and landlords in the UK to be aware of…
In recent years, there have been a number of changes to stamp duty in the UK. Further changes may come into effect in 2021, with the government planning to add a 2% surcharge for all UK property purchases made by overseas buyers.
Currently, when purchasing a new buy-to-let property, landlords are required to pay an extra 3% stamp duty on each band compared to those buying a property as their main residence.
The stamp duty bands and surcharges for landlords are as follows:
- Up to £125,000 – 3% surcharge
- £125,001 – £250,000 – 5% surcharge
- £250,001 – £925,000 – 8% surcharge
- £925,001 – £1.5m – 13% surcharge
- Over £1.5m – 15% surcharge
The tax relief for residential landlords has been restricted to the basic rate of Income Tax. This has been phased in since April 2017 and fully in place since 6th April 2020.
The reduction is at the basic rate value (currently 20%) or the lower of:
- Finance costs – costs not deducted from rental income in the tax year (a proportion of finance costs for the transitional years) plus any finance costs brought forward
- Property business profits – the profits of the property business in the tax year (after using any brought forward losses)
- Adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance
The tax reduction cannot be used to create a tax refund.
If renting through a limited company you can still get full tax relief for the finance costs.
Those living overseas and renting out a property in the UK are required to withhold basic rate tax from their rental income, which must be paid to HMRC.
From 6th April 2020, non-UK tax resident corporate landlords are subject to corporation tax at 19% rather than income tax, on any UK rental profits and will need to register for corporation tax.
Capital Gains Tax
Changes to property residence rules and regulations mean landlords will face a high capital gain tax when they sell their property.
Before April 2020, landlords and property investors were entitled to up to £40,000 in Capital Gains Tax relief when letting a property that they had been living in. This has been scrapped and landlords are now required to be living in the property in shared occupancy with the tenant in order to qualify for Capital Gains Tax relief.
Previously Capital Gains Tax bills were paid as part of a landlord’s self-assessment tax return, meaning that the full amount was not due until the following tax year. However, changes that came into effect on 6th April 2020 mean that landlords who sell a rental property in the UK now have just 30 days to pay their Capital Gains Tax bill.
If you are a landlord or property investor in the UK, and would like advice on your tax obligations, please get in touch with us here at Magpie Accountancy for assistance.