At our property investment seminars, we often get asked about tax, and how to stay within the law as a landlord. It’s an important topic, and one to familiarise yourself with, if you’re serious about UK property investment.
When investing in buy-to-let property for sale, you’re essentially starting up a business, and like any business-owner, you’ll need to pay tax at every stage of the process. Whilst the government makes it relatively easy to follow tax rules, there are a few common errors that landlords make. Here’s some more details, to ensure you don’t make the same mistakes yourself.
What Taxes Do You Need to Pay?
The main taxes that you need to be aware of are:
- Stamp duty. Under the 2016 stamp duty changes, all second homes are subject to stamp duty, starting at 3%.
- Tax on your income. Any income generated from rent is added to your other earned income and subsequently taxed.
- Capital gains. If you sell the property and it’s risen in value, you’ll need to pay tax on the difference.
- Inheritance tax. If you leave the property to someone else after you die, it’s likely they’ll need to pay inheritance tax on it.
Property Seminar Tips – Avoiding Common Tax Mistakes
If you work with an accountant, it’s unlikely you’ll make any serious tax errors. Likewise, a good property investment agent can provide details about your tax responsibilities. However, if you choose to go it alone, here are a few of the more common mistakes – and how to avoid them.
- Failing to recognise that rent is a form of income. Some investors have included rental payment under their personal allowance limit, believing they don’t need to pay tax on it. Unfortunately, this is not the case, even if you’re paying tax already on an existing salary. All money generated from rental income is added to your existing earnings – and if this is above a certain amount, you might even be moved into the higher tax bracket. Do your sums first, before searching for buy-to-let property for sale.
- Passing property on before your death. In the past, some investors have attempted to sign property over to loved ones before they die, in an attempt to avoid inheritance tax. This isn’t such a beneficial way of doing it, as it’s treated as a sale, which means your relative will need to pay stamp duty, and you’ll need to pay capital gains tax! It’s better to enlist the help of a professional financial advisor, who’ll be able to explain your options and recommend a particular course of action.
- Failing to factor in new stamp duty rates. In the past, properties below £125,000 didn’t incur any stamp duty charges. However, after the changes introduced in 2016, now all second homes purchased are subject to stamp duty. This can range from 3% to 15%, depending on the price of the property – and this is where buying a house at auction comes in handy, as you’re likely to secure the property at a cheaper price!
The Buy2Let Shop – Property Investment Seminars
Getting to grips with tax matters can be tricky – which is where a property investment seminar can come in handy. The Buy2Let Shop run regular free property seminars in London, designed to boost your knowledge of tax matters, and support your future investments.
To find out more about our seminars, and our other range of services, simply visit The Buy2Let Shop today.