You Need to Know About Buy-to-Let Tax

Here’s What You Need to Know About Buy-to-Let Tax


Taxes are a difficult subject, and many find themselves struggling to understand when and how some of them they apply. Taxes applicable to buy-to-let properties are especially complex because they are constantly being modified and amended, leaving landlords feeling frustrated and unsure where to turn to.

Our experienced estate agents in Newham are always available to support landlords in every aspect of renting or managing their properties as well as their rental income. They are committed to providing professional advice and guidance and make it their mission to consistently deliver the best services. To get in touch with them and get a free valuation for your rental property, call our estate agents in Newham at 0207 055 0441.

What you can find in this article:

Taxes Landlords Must Pay on Buy-to-Let Properties

Buy to Let Properties Tax

If there is one thing none of us can escape from, landlords included, is paying taxes. However, what our estate agents in Newham can do is help you organize your finances and know everything you need to know about paying taxes so that you are never caught off guard.

Buy-to-let investors, just like anyone else living in the UK, must pay income tax, as well as national insurance tax and VAT if applicable.

Buy-to-let taxes may be slightly different depending on where the property is located, such as in England, Scotland, Northern Ireland, or Wales but overall, the taxation system is the same.

The most significant of these taxes is the income tax on personally owned rental properties. The only good news about this tax is that it is easy to calculate, according to our estate agents in Newham.

To determine the amount of tax they need to pay, landlords must first deduct any allowable expenses from the rental income. The amount of income a landlord doesn’t have to pay tax on, known as a Personal Allowance, is £12,570. Deducting the allowable expenses from the income will help determine the profit.

Income tax is paid depending on the tax bracket the landlord’s rental income falls under. It starts from 20% tax and goes up to 40%.

If a landlord does not own the buy-to-let property personally but through a limited company, they have to pay a different tax, which is more flexible and advantageous according to our estate agents in Newham.

In such cases, the landlord owes corporate tax instead of income tax and can deduct all mortgage interest payments from the taxable income. The landlord will not owe additional tax unless the profits are taken out of the company. To take the money out of the company, the landlord will have to pay tax on salary and dividends, as well as pension.

Buy-to-Let Stamp Duty Tax

Buy to Let Stamp Duty Tax

Stamp duty is payable by everyone except first-time buyers if the property they are purchasing is under £300,000.

For buy-to-let properties and any type of second home located in the UK, a stamp duty surcharge is applied depending on the property’s value. The thresholds for stamp duty tax are as follows:

  • 3% stamp duty tax for a home valued up to £125,000
  • 5% stamp duty tax for a home valued up to £250,000
  • 8% stamp duty tax for a home valued up to £925,000
  • 13% stamp duty tax for a home valued up to £1.5 million
  • 15% stamp duty tax for a home valued at over £1.5 million

The only piece of good news is that stamp duty paid on buy-to-let properties can be deducted from the capital gains tax, which we will get into next.

Capital Gains Tax

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According to our estate agents in Newham, landlords must pay capital gains tax (also known as CGT) on buy-to-let properties and any second homes if the value of these properties has increased while the landlord has ‌owned‌ them.

Capital gains tax is only payable on any income that exceeds the landlord’s tax-free allowance of £12,300. It starts at 18% and goes up to 28% depending on the income bracket the landlord falls under.

To reduce the amount of capital gains tax they must pay, landlords can deduct the following costs:

  • Survey costs
  • Valuation costs
  • Solicitor fees
  • Estate agent fees
  • Stamp duty paid upon purchasing the property
  • Costs relating to home improvements
  • Advertising costs for the sale of the property

How to Reduce Tax on Buy-to-Let Properties

estate agents in Newham

If you are a landlord and want to reduce the amount of tax you have to pay on a buy-to-let property, our estate agents in Newham recommend you do this by either transferring ownership of the property to a limited liability company or by ensuring you are deducting all allowable expenses.

If you transfer the property to a limited company, you will benefit from capital gains and income tax reductions.

As regards allowable expenses, you can deduct the following from your pre-tax profits:

  • Utility bills
  • Property repair and maintenance costs incurred after letting the property
  • Legal fees for lease renewal, short-term tenancies, and evictions
  • Legal fees for rent collection
  • Management and accountancy fees
  • Estate agent fees
  • Building insurance
  • Property loans interests
  • Council tax
  • Ground rent and service charges

If you are a landlord and want a free valuation of your property and professional advice on how to present it to renters, manage it, or even sell it, contact our experienced estate agents in Newham. Call us today at 0207 055 0441 to get the best advice and professional support.

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