Tax considerations

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

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

If you aren’t a resident in the UK and use a letting 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 that reduce the amount of tax you may have to pay on any capital gain you’ve 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 government tax is payable on property or land above a certain price threshold in England or Northern Ireland. Use our stamp duty calculator to work out how much your stamp duty will be.

Similarly, if you’re buying a property or land in Scotland or Wales, there are equivalents of this tax that you might have to pay. Different rates apply for different property prices, so it’s worth looking into it well in advance.

For full information on stamp duty, including what it is, how much it costs and to use our stamp duty calculator, take a look here.

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 three per cent stamp duty above the current Stamp Duty Land Tax residential rates.

Restriction of allowable costs

All landlords with residential property inside or outside the UK can claim relief for finance costs such as mortgage interest incurred on the property they let. Tax relief is available at 40% and 45% for landlords paying tax at the higher and additional tax rates. However, this tax relief will be restricted to the basic rate of income tax (20%) by April 2020 and is being phased in gradually by the Government from April 2017.

Changes to Wear and Tear Allowance

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

Capital Gains Tax

Landlords are likely to have to pay Capital Gains Tax if they make a profit when they sell a property that’s not their home such as a buy-to-let investment.

In the last 10 years, there have 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 2019-20 is £12,000.

To understand these issues further get in touch with your accountant or an independent tax advisor.

For more information on landlord tax considerations and information, visit ARLA PropertyMark.