Tax Implications
TAX
These are the major basic tax facts that effect buy-to-let landlords.
Please note that tax is a very complicated subject and your are best advised to consult a suitable accountant.
Income tax
You are liable to pay income tax on the rental income you receive
Tax will be charged at your highest marginal rate of income tax - either 22 per cent or 40 per cent
Allowances you can offset against income tax :
Take your rental income and deduct the following:
- Interest payments on your buy-to-let mortgage (not capital repayments!)
- Mortgage arrangement costs i.e. broker fees
- Maintenance costs
- 10% a year depreciation of furniture value
- Cleaning
- Ground rent, service charges and buildings insurance
- Advertising the property for letting
- Letting agent's fees
- Accountant's and professional fees.
- Insurance policies on white goods, gas boilers, plumbing cover etc
Capital Gains Tax
When you come to sell the property, you will be liable for CGT on the gain you have made
You have a personal CGT allowance of £7,700 a year. If your property is held in joint names with a spouse or partner, you can add your allowances together
Any net taxable gain in the year is added to your total income from other sources in the year to determine the tax band applicable.
If the property was formerly your main residence (ie your home), you are exempt from CGT if you sell within three years of it becoming a rental property
Where a gain is made on disposal of a property that has been a main residence at some point, but has also specifically been let as residential accommodation, then a further special relief is available. This exempts a gain of up to £40,000
If the property was never your main residence, you are liable for full CGT for the first three years. After that the proportion of tax charged is tapered for the next seven years. There is a reduction of 5% after three years increasing by 5% each year to a maximum of 40% of the gain, after 10 years. This equates to effective tax rates for higher tax payers of 24%, and base rate tax payers of 13.8%.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The overall cost for comparison is 7.1% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There may be a fee for the mortgage advice. The precise amount will depend on your circumstances, but we estimate it will be 1.5% of the loan amount with a minimum fee of £500 added on to the loan.
Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
