Rental income form personally held buy to let is taxed at the owner’s tax rate (up to 45%).

On acquisition, landlord pays Stamp Duty Land Tax (SDLT) which from April 2016 a 3% charge above the current rates apply.

On disposal from 5 April 2015 whether the landlord is UK resident or not disposal of interest in UK residential property is subject to Capital Gains Tax (CGT).

If you decide to incorporate then you would trigger a capital disposal and CGT will be payable at either 18% or 28% or a combination of the two depending on your level of income.

With Inheritance Tax (IHT) BPR is not likely to apply in respect of buy to let as its considered an investment, beneficiaries would receive the property at market value  and with immediate sale no CGT will be payable.
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For further information please contact us on [email protected].

Changes to Income Tax 
Personal allowance is now set at £11,000.
The basic rate threshold is now set at £32,000 which means earnings in excess of the personal allowance up to this threshold are taxed at 20%.
Earnings between £32,001 and £150,000 are taxed at 40% and Income over £150,000 would fall into the additional tax rate which is taxed at 45%.
Personal allowance will be reduce on income over £100.000 at rate of £1 for every £2 on income, which means at £120,000 personal allowance is wiped out. The £20,000 earned over £100,000 is effectively taxed at 60%.

Dividends
The new dividends regime is now in place. Under the new regime the first £5,000 is tax free, after that the basic rate tax is set at 7.5%. Dividends at higher rate are taxed at 32.5% and 38.1% at additional rate tax.

Capital Gains Tax (CGT)
Capital gains tax was reduced from 18% to 10% at the basic rate, from 28% to 20% above basic rate of earning, although this reduction does not apply to residential property which will continue to be taxed at the previous higher rates.

VAT
VAT compulsory registration threshold is set at £83,000 in any 12 months period.
If you receive goods worth more than £83,000 from the EU in the UK then you must register for VAT.
You must register within 30 days of your business turnover exceeding the threshold however you may wish to register voluntarily if your turnover is below the threshold of £83,000 or if its advantageous to your business, perhaps you sell mostly to UK vat registered businesses?

​For further information please contact us on [email protected].

​Investing in a buy-to-let can be a good idea but there are a few things from tax perspectives that you need to take into account before deciding to invest.
 
You need to consider that you will probably pay tax when you purchase the property, you will pay tax on the rental earnings and when you decide to sell the property.
 
Stamp Duty Land Tax (SDLT)
More commonly known as stamp duty, SDLT is tax you pay when you purchase any property.
Current rates of SDLT are;

• Properties worth up to £125,000 are exempt
• Properties worth between £125,001 and £250,000 are taxed at 1%
• Properties worth between £250,001 and £500,000 are taxed at 3%
• Properties worth between £500,001 and £1m are taxed at 4%
• Properties worth between more than £1m and £2m are taxed at 5%
• Properties worth more than £2m are taxed at 7%

 
Form April 2016 the government has decided to add an additional 3% above the current SDLT rates for purchases of second home or buy-to-let properties.
 
Income Tax on Rental Earnings
 
Profits form rental income are subject to tax in the same way as other earnings.
 
To calculate your profit you take all rental earning and take away any “allowable expenses” which we discussed in December 2015, to read about “allowable expenses” click here.
 
Capital Gains Tax (CGT)
 
When you dispose of an asset you need to pay CGT on the gains.
 
Every year you have an annual tax free allowance, for the tax year 2015/16 this allowance is £11,100 which means gains of up to this threshold are tax free.
 
Any gains over the annual tax free allowance are subject to tax at 18% for basic rate taxpayers, and 28% for those in higher tax bracket.
 
You could reduce your CGT bill by offsetting some of your expenses against it, as follows:

• Solicitor’s fees
• Estate Agents fees
• Advertising fees
• Stamp duty
• Any expenses incurred when improving the property
• Any qualifying period for Private Residential Relief (PRR) and Letting Relief

 
You don’t pay CGT on your main place of residence, so if for any period you own the property and lived in it as your only home, this period could qualify for Private Residential Relief (PRR).
 
Example of Calculating CGT

If you own a property for 10 years (120 months), live in the property as your main residence for 2 years (24 months) then use the property as second home for 4 years (48 months) and  rent the property for last 4 years (48 months) you can claim both private residence (PRR) and Letting Relief.

​Assume the profit made is £50,000. The amount of PRR you can claim is 24 months, plus 18 months for the final period of ownership, equaling 42 months which equates to 35% of the total period of ownership.
 
You can claim Letting Relief on the 30 months, this is 48 months minus the 18 months of PRR. This equates to another 25% of the total period.
 
Total Gains                                          £50,000
Less PRR                                                £17,500
Less Letting Relief                               £12,500
Less 2015/16 Allowance                     £11,100          
Total Gain Subject to CGT Charge    £8,900
 
The £8,900 is subject to capital gains tax charge at either 18% or 28% depending on the total income of the tax payer in that year.
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For further information please contact us on [email protected].

Expenses fall into two categories, Capital Expenses and Revenue Expenses which are directly related to the lettings business.

One way of distinguishing between the two types of expense is to ask how long does the benefit of the expense last?

If the expense is, for example, the cost of adding a bedroom to the property then this would be considered a capital improvement. Any tangible improvement to the asset is considered a capital improvement and therefore not an allowable expense for the purpose of Income Tax. However, decorating a property is considered a revenue expense as every property would need to be redecorated at some point. These expenses can be claimed for the purposes of Income Tax.
 
Here is a list of allowable Expenses:

• Advertising expenses for tenants
• Agents’ fees for property management, including finding and vetting tenants
• Gardening, cleaning and waste disposal
•  Council Tax and Ground Rent
•  Insurance for Building, Contents and Loss of Rent
• Accountancy fees, though this would be the charges to prepare the rental account and not the cost of calculating and filling a tax return
• Cost of collecting rent/enforcing debts and bad debt where the rent due from the tenant is taxable, however it is not being paid or not recovered
• Cost of services provided to tenants, such as where the landlord pays for gas, electricity, water council tax, internet or annual service charges on a flat
• Mortgage interest and charges for buying, extending or improving a property but not the capital repayment, if any
• Motor and travelling costs of running the property business, such as travelling from one’s home to the let properties, to meet agents, or tenants
• Printing, postage and stationery costs related to running the property business
• Renewals basis and maintenance, the cost of replacing or repairing integral fixtures and fittings to the building such as sinks, baths, boilers or kitchen units can be claimed, whether or not a Wear and Tear Allowance has been claimed. The initial cost or any improvement element on a replacement item is not deductible. There should not be a significant improvement to these fixtures but rather a replacement of the fixture
• Wear and Tear Allowance, 10% of the gross rent received in respect of fully furnished properties, where Capital Allowance is not claimed (for changes to Wear and Tear Allowance please click here)

For further information please contact us on [email protected].