{"id":5033,"date":"2021-03-11T14:20:08","date_gmt":"2021-03-11T11:20:08","guid":{"rendered":"https:\/\/britannia-business.com\/?p=5033"},"modified":"2025-08-15T12:56:23","modified_gmt":"2025-08-15T09:56:23","slug":"tax-on-buy-to-let-properties","status":"publish","type":"post","link":"https:\/\/britannia-business.com\/en\/2021\/03\/11\/tax-on-buy-to-let-properties\/","title":{"rendered":"Tax on buy to let properties."},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

1) Stamp Duty<\/strong> <\/p>\n\n\n\n

The 0% stamp duty rate will be valid until June 30 2021 for properties under \u00a3500,000 and from July 1 until September 30 2021 for properties under \u00a3250,000.  However, if you are buying a buy-to-let property or a second home, you will need to pay an additional 3% tax on top of the standard stamp duty rate. <\/p>\n\n\n\n

The following rates apply to rental and second home purchases up to June 30 2021.<\/p>\n\n\n\n

Property price<\/strong><\/td>Stamp duty rate<\/strong><\/td><\/tr>
\u00a30 – \u00a3500,000<\/td>3%<\/td><\/tr>
\u00a3500,001 – \u00a3925,000<\/td>8%<\/td><\/tr>
\u00a3925,001 – \u00a31.5m<\/td>13%<\/td><\/tr>
\u00a31.5m +<\/td>15%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

From 1 October 2021, normal rates will apply for everyone.<\/p>\n\n\n\n

Property price <\/strong><\/td>Stamp duty rate<\/strong><\/td><\/tr>
\u00a30 – \u00a3250,000<\/td>3%<\/td><\/tr>
\u00a3250,001 – \u00a3925,000<\/td>8%<\/td><\/tr>
\u00a3925,001 – \u00a31.5m<\/td>13%<\/td><\/tr>
\u00a31.5m +<\/td>15%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

2)<\/strong> Capital Gains Tax on buy to let property.<\/strong><\/p>\n\n\n\n

If you sell the property for more than what you paid for it, after deducting the costs such as stamp duty and agent \/ solisitors fees. You make a profit (capital gain), so the tax applies.<\/p>\n\n\n\n

What You Can Do To Reduce Your CGT<\/p>\n\n\n\n

As an individual you get an annual allowance of \u00a312,300 to set against any gain<\/p>\n\n\n\n

There are legal ways to reduce the amount of Capital Gains Tax (CGT) payable.<\/p>\n\n\n\n

\u2022 Loss from the sale of buy to let properties in previous tax years<\/p>\n\n\n\n

\u2022 Legal fees<\/p>\n\n\n\n

\u2022 Estate agent fees<\/p>\n\n\n\n

\u2022 Advertising costs<\/p>\n\n\n\n

\u2022 Stamp duty<\/p>\n\n\n\n

\u2022 Any expenses for “capital” items<\/p>\n\n\n\n

Certain tax reliefs are also available. For example, if the property was previously your primary residence, your profit for tax purpuses  may be reduced.<\/p>\n\n\n\n

Tax should be paid on the profit of the sale of the property within 30 days of the date the property is sold.<\/p>\n\n\n\n

3) Tax on the rental income<\/strong><\/p>\n\n\n\n

You need to declare the rent you receive on your tax return. Your income is taxed according to the income tax range (20% for taxpayers at the base rate, 40% or 45% at the higher rate).<\/p>\n\n\n\n

However, you can reduce the tax you have to pay by deducting certain \u201celigible expenses\u201d from your taxable rental income.<\/p>\n\n\n\n

Allowable expenses:<\/p>\n\n\n\n

\u2022 Council tax, insurance, land rent, etc.<\/p>\n\n\n\n

\u2022 Renovation and maintenance of property – however major improvements such as loft convertions, etc. are not deductible for income tax. They will be counted to reduce the Capital Gains Tax when the property is sold.<\/p>\n\n\n\n

  \u2022 Legal, management and other professional fees such as the cost of estate agents.<\/p>\n\n\n\n

\u2022 Direct costs such as phone  and advertising for new tenants, travel costs.<\/p>\n\n\n\n

\u2022 Other expenses, including building insurance<\/p>\n\n\n\n

Is it more profitable in terms of taxes to open a company?<\/strong><\/p>\n\n\n\n

Depends on a number of factors. How many properties are we talking about, how soon do you plan to receive income from the sale, individual circumstances.<\/p>\n\n\n\n

Companies are not subject to the new limit on mortgage interest, which came into effect in April 2017. Morrgage interest for companies is classified as a business expense and fully deductible against income.<\/p>\n\n\n\n

Companies pay Corporation tax at the fixed rate regardless of  their profits. The rate is currently 19%. Compared to 40% for higher rate tax payers and 45% for additional higher rate taxpayers this makes the tax rate very attractive<\/p>\n\n\n\n

The rules will change after April 2023, for companies with profit over \u00a3 50,000 the Corporation tax rate will be 25%. However, companies earning between \u00a3 50,000 and \u00a3 250,000 will be eligible for tax relief, and only those earning over \u00a3 250,000 will have to pay the full 25% tax rate.<\/p>\n\n\n\n

How to withdraw money from your company. If the money is withdrawn from the company as dividends, then only the first \u00a3 2,000 of dividend income is tax-free. Any dividends received in excess of this will be charged at 7.5% for a taxpayer with a base rate of 32.5% for a taxpayer with a higher rate, or 38.1% for a taxpayer with an additional higher rate. This tax is after the corporation tax at 19% has been paid.<\/p>\n\n\n\n

The money can be taken as a wage, but the company must register as an employer and pay taxes on the salary. This is usually (in most cases) more expensive than paying dividends.<\/p>\n\n\n\n

Companies also have to prepare annual reports and file tax returns, which can be onerous.<\/p>\n\n\n\n

The interest rates charged on mortgages for companies are always higher than for individuals, so it is necessary to compare the amount of the rates with the tax consequences.<\/p>\n\n\n\n

If you are planning to share the profits with your family, it is worth thinking about who the company will belong to when forming a company, perhaps it is worth adding the owner’s wife \/ husband, adult children to optimise tax.<\/p>\n\n\n\n

Transferring a current buy to let property into a limited company can incur Stamp Duty and Capital Gains Tax, therefore advice should be sought prior to making such a transaction.<\/p>\n\n\n\n

Due to the complications in this area, it is important that you seek professional tax advice.<\/p>\n","protected":false},"excerpt":{"rendered":"

1) Stamp Duty  The 0% stamp duty rate will be valid until June 30 2021 for properties under \u00a3500,000 and from July 1 until September 30 2021 for properties under \u00a3250,000.  However, if you are buying a buy-to-let property or a second home, you will need to pay an additional 3% tax on top of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-5033","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/posts\/5033","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/comments?post=5033"}],"version-history":[{"count":3,"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/posts\/5033\/revisions"}],"predecessor-version":[{"id":5036,"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/posts\/5033\/revisions\/5036"}],"wp:attachment":[{"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/media?parent=5033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/categories?post=5033"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/britannia-business.com\/en\/wp-json\/wp\/v2\/tags?post=5033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}