What are the main tax considerations for Landlords?
The Government has hit landlords hard over the past 12 months with changes to the tax they pay and can claim back. Here we outline the tax rules which landlords need to consider.
Stamp Duty Land Tax (SDLT)
As of 1 April 2016, anyone in England, Wales and Northern Ireland purchasing an additional residential property (that is not their only or main residence) for £40,000 or more must pay an extra 3% stamp duty above the current Stamp Duty Land Tax (SDLT) residential rates.
The current rates mean that you pay Stamp Duty on increasing portions of the property price above £125,000 when you buy residential property. For instance –
- up to £125,000 the SDLT rate is zero
- the portion from £125,001 to £250,000 is 2%
- the portion from £250,001 to £925,000 is 5%
- the portion from £925,001 to £1.5 million is 10%
- the portion above £1.5 million is 12%.
Therefore, for an additional buy-to-let property, landlords will pay an extra three per cent on top of these rates!
It’s worth noting that purchasers now have 36 months rather than 18 months between selling the main residence and replacing it with another without having to pay the higher rates.
Land & Buildings Transaction Tax (LBTT)
Since 1 April 2015 Land and Buildings Transaction Tax (LBTT) replaced UK Stamp Duty Land Tax (SDLT) in Scotland.
Under LBTT, properties worth up to £145,000 will not pay any tax. For sales between £145,001 and £250,000, a tax rate of 2% is applicable with a rate of 5% between £250,001 and £325,000. Between £325,001 and £750,000, the rate will be 10%, with a top rate of 12% applying to all transactions above £750,000.
From 1 April 2016, an extra 3% stamp duty above the current LBTT residential rates was introduced for anyone purchasing an additional residential property (that is not their only or main residence) for £40,000 or more.
Restriction of Allowable Costs – Section 24
All landlords with residential property inside or outside the UK are allowed to claim relief for finance costs such as mortgage interest incurred on the property they let. Tax relief is available at 40% and 45% for landlords paying tax at the higher and additional tax rates. However, this tax relief will be restricted to the basic rate of income tax (20%) by April 2020 and is being phased in gradually by the Government from April 2017.
Changes to Wear and Tear Allowance
In April 2016, the Wear and Tear Allowance for fully furnished properties in the UK was replaced with a relief that enables all landlords of residential houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property. The relief given will be for the cost of a like-for-like, or nearest modern equivalent, plus any costs incurred in disposing of the old item, or less any proceeds received for, the asset being replaced.
Capital Gains Tax
Landlords are likely to have to pay Capital Gains Tax if they make a profit when they sell a property that’s not their home such as a buy-to-let investment. In the last 10 years, there have been many changes to how Capital Gains Tax is charged. Currently, the rate applicable to gains made on the sale of a property is 28% and this amount is payable irrespective of whether a landlord intends to reinvest these gains.
To understand these issues further get in touch with your accountant or an independent tax advisor.
HMRC Online Tax Training
HMRC offer an online training course and run regular webinars to provide help and guidance for landlords with their tax requirements.
The training covers:
- Property Income
- How to work out profit or loss
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