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Even as a landlord, owning property will make you subject to taxation. Taxes associated with buy-to-let are often known as ‘landlord tax’. Here we go into detail on what landlord tax exactly is and how will affects you as a property owner.

Different types of landlord tax

when people start talking about landlord tax, they could be referring to as many as three different types of tax, these include stamp duty, income tax and capital gains tax

As a landlord, you should be aware of the four different types of landlord tax:

Stamp Duty

Each property you purchase will be subject to a stamp duty charge. The rates for stamp duty vary depending on the price of the property.

Here are the following tax rates:

Tax brackets Buy-to-let / second home rate (April 2016)
Up to £125,000 3%
£125,001 - £250,000 5%
£250,001 - £925,000 8%
£925,001 - £1.5m 13%
Over £1.5m 15%

 

Try our free Stamp Duty calculator

 

Income tax

You must declare all rental income you receive on your tax return as a buy-to-let landlord and send these numbers to HMRC before the 31st January. Although, you are able to reduce the amount of income tax you pay to HMRC by claiming for allowable expenses.

Your rental profits are taxed at the same rates as income you receive as a sole trader or employment, 0%, 20%, 40% or 45%, this will depend on which tax band your income fits in to.

Having rental income on top of income you earn else where could put you in the higher tax band, meaning you’ll pay more tax.

Capital gains tax

You’ll only need to pay Capital Gains Tax if you had made profit on sales of buy-to-let properties. For example, if you brought a property for £100,000 and sold it to a new buyer for £155,000, you will need to pay capital gains tax on £43.300 (£155,000 less £100,000 costs Less £11,700 exemption) after taking into consideration the annual capital gains tax exemption limit, of £11,700 in 2018/19.

The amount of capital gains tax you pay will depend on your income. For example, if your income is taxed on higher rate tax (40%), you’ll pay 28% on gains from residential property. If your income is taxed on basic rate tax (20%), you’ll pay 18% on gains from residential property.

It may be possible to reduce the amount of capital gains tax you pay by listing expenses you’ve incurred when buying, selling or enhancing the property on your self assessment tax return. Expenses could include legal fees, advertising fees, estate agent fees, stamp duty etc.

Tax software landlords can use

When it comes to the property sector, there are many tax elements to deal with. When you’re a landlord it’s important to have your taxes in order.

GoSimpleTax will give you the correct tax calculations and will submit these figures directly to HMRC. All the essentials of landlord expenses are included and will provide you with hints and tips on where it thinks you can save on your tax bill.

Get 25% off with GoSimpleTaxvia the Upad Landlord Club, to see how can help you.

Find out more about the Upad Landlord Club

 

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By Sandra Mpouma
13 Dec 2018

Categories: SimpleTax, Tax, Buy to Let

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