What taxes do landlords pay?
You pay tax when you buy a property, every year you let the property, and later when you sell it.
Stamp Duty when you buy a property
You must pay tax when you buy a property over a certain price in the UK. In England individuals pay Stamp Duty on properties worth £125,000 or more, and on non-residential properties or land worth £150,000 or more.
These are only the basic rules. If you're buying for the first time, the thresholds for paying stamp duty are generally higher, so you may not have to pay. If you're buying to let, stamp duty rates are tiered and start at a lower value than those for other home buyers!
In England, the rates from 1st April 2021 look like this:
|Property Price||Buy to Let Stamp Duty|
|£0 - £40,000||0%|
|£40,0001 - £125,000||0%|
|£125,001 - £250,000||2%|
|£250,001 - £925,000||5%|
|£925,001 - £1.5 million||10%|
|£1.5 million +||12%|
Please note the above is for your first purchase of a buy to let, if any buy to let is a second purchase (you own another property) different stamp study applies.
Income Tax while you're letting property
If you make money from letting property, you have to complete a self-assessment tax return, depending on your total income. The rate of income tax you pay varies by income. For 2019/2020, the personal allowance was set at £12,500. You pay basic rate-20% of income on higher than £12,500 up to and including £50,000. You pay the higher of 40% income tax on over £50,000. If you make more than £150,000, you pay the additional rate of 45%.
If you make between £1,000 and £2,500 a year from letting property, you must make HMRC aware of the fact in order to pay tax. If you make between £2,500 and £9,999 after allowable expenses, or over £10,000 before allowable expenses, you will need to make a self-assessment tax return and may have to pay income tax. If you're filling out a paper form to make your self-assessment return, you must do this by 31st October each year.
Landlords with more than one property
Many landlords have several properties. When this is the case, tax liabilities are considered similar to when running any other business. For self-assessment, all rents and expenses from similar properties are pooled into a single file. This means you have to divide your properties, rents and expenses up along the following lines:
|UK Rentals - any buy to let out on short hold tenancy|
|Overseas Rentals - any properties abroad let on a long lease|
|Holiday lets - homes located within the European Economic Area (EEA) that qualify as furnished holiday lets. Holiday homes outside the EEA slot into the overseas rental category.|
Expenses that you can and cannot claim
As a landlord, you should claim property expenses. Every pound spent on a property reduces profits, which reduces your income, which reduces your tax liability. It's not tax avoidance - it's paying your fair share; no more and no less.
Landlords can easily overlook rental income that they should include in a self-assessment tax return. If you retain money from a deposit to pay for repairs or cleaning when a tenant leaves, this must be included in your tax return. The same logic applies if the tenant pays for extra services throughout the year or if you reduce the rent to repay a tenant for the cost of a repair they carried out. When you fill in your tax return, you still add the full rental income, but you also add the bill for materials and tradesmen paid for by the tenant as allowable expenses.
You are the landlord - you benefit from owning the property - the tax liability and book-keeping responsibility both lie with you.
Many landlords aren't sure if they're responsible for council tax or if it's for the tenant to pay. In most cases, the council tax is the tenants responsibility for paying the council tax however there are some exceptions. These include:
|1- Houses in multiple occupation (HMO)|
|2- If the tenants are under 18 years of age|
|3- If the tenants are renting short-term in an emergency situation|
|4- If the tenants are asylum seekers|
Stamp Duty 2021/2022
The current stamp duty holiday is not likely to be extended after the 31st March 2021. From 1st April 2021 the usual rates will apply.
Managing your Liability
Understanding your own tax liability will help you to make the most out of your property assets. Managing your liability is a matter of knowing exactly what you can and can't claim as expenses.