15 January 2018
15 January 2018,

As with any form of investment, when you purchase a buy-to-let property for sale, you can expect to pay some form of tax. Like it or not, the tax-man will take his cut, so it’s best to be prepared and to know exactly how much you’ll be paying.

If the tax system leaves you baffled, here’s some useful information to demystify the process.

What Tax Can You Expect to Pay?

Essentially, you’ll be required to pay two forms of tax whenever you buy or sell an investment property. When you make a purchase, you’ll pay Stamp Duty tax, and when you sell, you’ll pay Capital Gains tax.

Stamp Duty tax rates changed in 2016 for people buying second homes / investment properties. Now, you’ll pay 3% of the property’s total price if it’s below £125,000, 5% if it’s between £125,000 and £250,000, 8% if it’s between £250,000 and £925,000, and 13% if it’s between £925,000 and £1.5 million. Anything above that is set at a rate of 15%.

Capital Gains tax is a little bit more complicated. It’s based on several different aspects of the property sale, including the price you bought it for, any costs incurred during the sale, the final sale price, and any other income you might be generating (e.g. rental yield from other properties, or income from your job).

Are There Any Loopholes?

Since the higher Stamp Duty rates were introduced, many landlords explored other forms of property investment – such as purchasing a commercial property instead (which isn’t subject to the same tax rates).

Another potential way around the tax is to purchase a second home as a couple, and live in the new property, while renting out the old one. It’s a complex loophole in the law, concerning ‘major interest’ and undivided shares; and as with any loopholes, we advise that you seek the assistance of a professional financial advisor before proceeding, to ensure that you remain within the law.

Rental Income Tax

As you’re earning an income from rental payments, you’ll also be subject to Income tax. This is calculated based on the profit you make, minus any allowances or allowable expenses.

If you own more than one property, all the profit you make is lumped together, and tax is calculated as a single amount – which helps keep things less complicated. You can hire an accountant to help you complete your tax returns, though many landlords choose to do it themselves for free. It’s not difficult to complete the necessary forms online.

Is it Worthwhile Investing in UK Property?

Certainly, thousands of landlords across the UK think so! There’s plenty of profit to be made from UK property investment, as long as you find the right buy-to-let properties for sale.

If you’re keen to explore your options, talk to the Buy2Let Shop. We’re a team of professional property investment agents, and we’re here to make your savings work harder for your future. To find out more about our range of services, visit The Buy2Let Shop website today.

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