Rental Income and Property Tax:
Rental Income & Property Tax: If you are an experience landlord or planning to become one we can help to minimise the tax liability at every stage of you being landlord.
If you’re buying land or property, you’ll need to pay Stamp Duty Land Tax – more commonly known as Stamp Duty. The amount you pay is calculated as a percentage of the property’s value.
| As guide rates are as follow | 2015/2016 | From April 2016 | ||
| On the transfer of property
the stamp duty land tax is: |
Res. | Non-Res. | Res. | Non-Res. |
| Value up to £125,000 | 0% | 0-1% | 0% | 0% |
| Over £125,000*– £250,000 | 2% | 1% | 2% | 3% |
| Over £250,000 – £500,000 | 5% | 3% | 5% | 8% |
| Over £500,000 – £925,000 | 5% | 4% | 5% | 8% |
| Over £925,000 – £1,500,000 | 10% | 4% | 10% | 13% |
| Over £1,500,000 | 12% | 4% | 12% | 15% |
Income Tax
If you’re a landlord receiving rent from one or more properties, in addition to other legal requirements it is an obligation to submit tax return to HMRC annually and pay the appropriate tax on rental income.
Expenses you can claim against your rental income includes but not limited to;
- Interest on a mortgage taken out on the property
- Buildings and contents insurance
- Council tax
- Travel costs to collect rent
- Maintenance
- Advertising the property for rent
- Agent fee
- Accountants fee
When you sell your property you are probably be liable for capital gains tax on profit.
There is an annual tax-free allowance which very from year to year. During the 2015/16 tax year, this allowance is £11,100.
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Tax changes affecting buy-to-let properties
The new tax changes for holding a rental property as an individual, or in a limited company, will need to be carefully considered by landlords.
These changes impact:
- allowable expenses
- stamp duty
- interest costs
- treatment of future gains
Wear and tear allowance
This has been abolished for individuals from 6 April 2016 and for companies from 1 April 2016. In its place landlords are able to claim as an allowable expense the actual cost of replacing furniture (such as tables, chairs and beds) and fittings (such as carpets and curtains). You can see the draft clauses; Clause 69: Property business deductions: replacement of domestic items and Clause 70: Property business deductions: wear and tear allowance; in the Finance Bill (No2) 2016
Stamp duty payable on purchase of property
An additional 3% stamp duty land tax is payable for properties purchased on or after 1 April 2016. This is to apply to both individuals and limited companies. There are detailed rules for individuals and for purchases through limited companies.
The surcharge applies to residential properties but not to commercial properties.
Interest payable on loans relating to the business
This measure will restrict relief for finance costs on residential properties to the basic rate of income tax and will be introduced over four years from 6 April 2017.
The measure will not affect companies renting out property, or individuals renting out commercial property or furnished holiday letting.
The measure will affect residential property in the UK and elsewhere, as well as mortgage interest, interest on loans to buy furnishings and fees incurred taking out or repaying mortgages or loans.
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
Finance cost allowed in full Finance cost allowed at basic rate
Year to 5 April 2016 100% 0%
Year to 5 April 2017 100% 0%
Year to 5 April 2018 75% 25%
Year to 5 April 2019 50% 50%
Year to 5 April 2020 25% 75%
Year to 5 April 2021 0% 100%
For more details of the services we offer related to Rental Income & Property Tax, give us a call on 020 7278 0007 or book a FREE No Obligatory Initial Consultation with one of our qualified accountant.