Renting property is regarded as running a business in the eyes of the law, especially as you’ll be generating an income from your investment. As with any business, it’s important to understand the tax rules, to avoid fines or even prosecution further down the line.
If you’re considering investing in property in the UK and letting out to tenants, here’s a quick guide to the main tax rules.
Once you’ve purchased your buy-to-let property for sale, you’ll need to inform HMRC, to ensure you’re set up to pay income tax on your earnings. The amount of income tax you’ll pay is dependent on how much you earn – if it’s under £43,000 a year, you’ll be on the basic rate (20%), and if it’s between £43,001 and £150,000, you’ll be on the higher rate (40%). Anything over this is charged at the additional rate (45%).
As you’re earning an income from your property, you’ll also need to pay Class 2 National Insurance (if you’re making profits of over £5,965 a year).
You may be eligible for tax relief, depending on your circumstances. It’s worthwhile enquiring to find out, though be aware, recent changes mean that the amount of relief you can claim is now capped at 20% over a four-year period.
Stamp Duty Hikes
In 2016, chancellor George Osborne announced a stamp duty hike for those owning a second home. Now, if your buy-to-let property for sale costs up to £125,000, you’ll pay 3% stamp duty tax. If it’s between £125,000 and £250,000, you’ll pay 5%, between £250,000 and £925,000, you’ll pay 8%, and if it’s between £925,000 and £1.5million, you’ll pay 13%. Anything over this is 15%.
In order to complete your tax returns each year, you’ll need to keep careful records of your expenses and all payments received. This is not only a legal requirement – you’ll also need these figures to fill out the relevant forms when the time comes.
It’s not too difficult to complete your own tax return, though if you prefer, you can hire an accountant to help you. If you complete your tax return online, you have an extra 3 months to complete it – until the 31st January. If you choose to submit your tax return by post, the deadline is 31st October.
Selling a Property
If you decide to sell your buy-to-let property, and it’s increased in value, you’ll need to pay capital gains tax on the sale. Gov.uk has a useful online calculator for working out exactly how much you’ll owe.
Making a Profit From Investing in UK Property
Many landlords in the UK make a great living from buy-to-let property for sale, providing they invest in the right house, in the ideal location. The Buy2Let Shop are a team of expert property investment agents, and we’re here to help you find the best property investment opportunities, at a price that suits your budget.
To find out more about our range of services, simply visit The Buy2Let Shop website today.