The 4 main taxes that affect Landlords with buy-to-let property investments 💰
#CAVENDISHEXPERTS in Lettings, Sales and Property Management in Nottingham | Cavendish Residential | One Fletcher Gate NG1 1QS | 0115 941 0656 | www.cavendishproperty.co.uk
The tax position surrounding owning property can be complex. One of the best ways to enhance your investment is to make sure you pay tax on income or gains as efficiently as possible.
Making small changes could save you money...
First and foremost, you must consider your ownership structure to mitigate your tax liability, the main options are:
🔹 Direct ownership
🔹 Joint venture
🔹 Partnership
🔹 Limited company
The tax position for direct ownership, joint ventures and partnerships is very similar. In each case, profits are taxed at your marginal rate and capital gains charged on sale. The difference with a partnership is that there is the opportunity to utilise the personal allowances and lower rate bands of all partners, who can be other family members.
For more information on the types of ownership, click here.
The following are the main taxes that affect Buy-to-Lets:
🔸 Income Tax
Any rental income after most expenses will be charged to Income Tax at your marginal rate. With the rate of Income Tax as high as 45 per cent, you should aim to ensure that all personal allowances and lower rate bands of tax are used in full.
Any losses arising from the rented property have to be carried forward and offset against any future profits arising from your rental business and cannot be offset against other income.
🔸 Interest Relief
As a buy-to-let Landlord, many of the expenses incurred in the course of letting your property are allowable for tax purposes. You are also able to deduct the costs incurred in purchasing replacement furnishings, including white goods, when calculating your taxable profit.
As part of an ongoing clampdown on the buy-to-let market, from 6 April 2017 relief for finance costs incurred on residential properties such as interest and mortgage costs, has been restricted to the basic rate of Income Tax of 20 per cent. The restriction was phased in over four years, with the full interest restriction taking effect from 6 April 2020.
🔸 Capital Gains Tax
The sale of a residential investment property is usually charged to Capital Gains Tax (CGT) at 18 or 28 per cent, where each person is entitled to an annual exemption (which for 2022/23 is £12,300).
For residential property sales, the deadline for submission and payment is 60 days following completion.
🔸 Inheritance Tax
Inheritance Tax (IHT) reliefs on investment property are limited. However, there are some simple steps which may help reduce the tax burden. IHT is charged on assets in your estate at 40 per cent over and above the nil rate band, currently £325,000. This band has not kept pace with inflation or the increase in property prices, so many people find that there are hefty tax bills arising on death.
If you would like to read Propertymark's guide in full, you can view it here.
For specific questions on the best ownership and tax structure to suit you, please email sam.barker@cavendishproperty.co.uk (pictured) - he will put you in touch with a specialist Financial Advisor.
Please note: Cavendish Residential are not authorised to give financial advice; the information and opinions provided in these articles are not intended to be financial advice and should not be relied upon when making financial decisions.
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#CAVENDISHEXPERTS in Lettings, Sales and Property Management in Nottingham | Cavendish Residential | One Fletcher Gate NG1 1QS | 0115 941 0656 | www.cavendishproperty.co.uk
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