In recent years, the UK Government has placed increasing tax obligations on buy-to-let landlords, including a stamp duty surcharge in 2016 and restrictions to mortgage interest relief for higher-rate taxpayers.
In light of those changes, alongside broader political upheaval in 2022, you’d be forgiven for wondering which taxes you are now liable to pay as a landlord and how much you’re expected to hand over to HMRC.
To save you time, we’ve included a summary to explain the different property taxes for buy-to-let landlords.
As a landlord, any profit you make from renting out your property is classed and taxed as income.
When renting out a property you own, you will have a £1,000 tax-free property allowance.
However, this doesn’t apply if you calculate your rental profits by deducting allowable expenses – so be sure to seek advice on which option is best for you.
Rent-a-room relief is also available if you let out furnished accommodation in your home, with a tax exemption of up to £7,500pa.
You will need to declare your income on a self-assessment tax return if you earn:
● £2,500 – £9,999 after allowable expenses
● £10,000 or more before allowable expenses.
The more you earn from your buy-to-let property, the more tax you’ll pay! – in line with the tax bands.
|Tax band||Threshold||Tax rate|
|Personal allowance||Up to £12,570||0%|
|Basic rate||£12,571 – £50,270||20%|
|Higher rate||£50,271 – £150,000||40%|
|Additional rate||Over £150,000||45%|
In rarer cases, you might also need to pay National Insurance on your property income, but this will depend on whether HMRC sees your activity as running a property business. We can advise you on whether this is the case.
If you decide to incorporate your buy-to-let property business (a limited company owns the property), you will pay corporation tax instead of income tax on your profits.
That said, incorporating brings complexities to any business, and for landlords with existing portfolios, there may be capital gains tax and stamp duty charges to consider when transferring ownership of your property to a company.
Currently, corporation tax is set at 19% but is soon expected to go up to 25% from April 2023 for profits over £250,000. A small profit rate of 19% will be introduced for companies with profits of £50,000 or less, while profits between £50,000 and £250,000 will be taxed at a tapered rate.
When purchasing a buy-to-let property, or even a second home, you’ll be expected to pay stamp duty land tax. The system dictates how much you’ll pay depending on the property price. The stamp duty surcharges are:
● 3% on the first £125,000
● 5% up to £250,000
● 8% up to £925,000
● 13% up to £1.5 million
● 15% on anything over £1.5m.
If you’ve bought a property in Wales, you’ll instead pay land transaction tax (LTT), which has different rates:
● 0% up to £225,000
● 6% between £225,000 and £400,000
● 7.5% between £400,000 and £750,000
● 10% between £750,000 to £1.5m
● 12% on anything over £1.5m.
Capital gains tax
When selling a property which is primary main residence, you won’t be liable to pay capital gains tax (CGT).
However, as your buy-to-let property is not your main home, you will be liable to pay CGT if you decide to sell it.
Any profit made after settling legal fees and stamp duty will be subject to CGT at varying rates depending on your income tax band.
Your annual tax-free CGT allowance is set at £12,300 in 2022/23, but after that, depending on the level of profit, basic rate taxpayers will incur 18% on some of their profits within the basic rate band, then increasing to 28%, and those at a higher rate will need to pay 28%.
This is soon to change following November’s Autumn Statement. From April 2023, the CGT allowance will be halved to £6,000 and halved the following tax year again to £3,000.
Get in touch
Running a buy-to-let business takes a lot of work and has tax complications. RBSCA specialises in the property sector with a large portfolio of buy to let clients, so by getting in touch with RBSCA, you can save yourself time spent on preparing and filing your returns together with sound tax advice.
Get in touch with our team today.