Tax Considerations: A Landlord’s Guide

As a landlord, you will have to declare your income and costs – whether you make a profit or not – you will need to keep all records, invoices, receipts, and statements for up to six years.

HMRC has various requirements, depending on which rental income bracket you fall into, so be sure to familiarise yourself with the differences between each bracket.

If you are not a resident in the UK, but use an estate agent for management, you can get an exemption from HMRC so that the rent can be paid over to you gross.

When you come to sell, there are several reliefs that are available which can reduce the amount of tax you pay on any capital gain you have made on the property, including Letting Relief and your Capital Gains Tax Allowance.

This can be a bit more complex so if you need to know more, you are advised to contact the Inland Revenue.

Stamp Duty Land Tax (SDLT)

You may also have to pay Stamp Duty Land Tax. This is a government tax that is payable on property or land above a certain price threshold. There are plenty of online calculators that can estimate how much your stamp duty will be.

Since 1 April 2016, anyone purchasing an additional residential property (that is not their only or main residence) for £40,000 or more must pay an extra 3% stamp duty above the current Stamp Duty Land Tax residential rates. You can find out more about the current Stamp Duty rates by clicking here.

Restrictions of Allowable Costs

All landlords with residentials properties inside or outside of the UK can claim tax relief for financial costs including mortgage interest incurred on the property they let. Tax relief is available at 40% and 45% for landlords paying higher or additional tax rates. However, this tax relief only restricts the landlord to the basic rate of income tax (20%).

Changes to Wear and Tear Allowance

From April 2016, a Wear and Tear Allowance for fully furnished properties was replaced with a relief that allows all landlords of residential houses to deduct the costs they incur on replacing furnishings, appliances, and kitchenware in the property. The relief provided will cover the costs of like-for-like, or nearest modern equivalent items, plus any costs incurred from the disposal of the old item, or less any proceeds received for, the asset being replaced.

Capital Gains Tax

Landlords usually must pay Capital Gains Tax if they make a profit when they sell a property that is not their home, such as a buy-to-let investment.

In the last decade, there has been many changes to how Capital Gains Tax is charged. Currently, the rate applicable to gains made on the sale of a property is 28% and this amount is payable irrespective of whether a landlord intends to reinvest these gains.

The current annual allowance for Capital Gains Tax in 2021-22 is £12,300.

To understand these issues further, it is advised that you get in touch with your accountant or an independent tax advisor.

For more information on landlord tax considerations and information about your responsibilities as a landlord, visit ARLA PropertyMark.

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