Mortgages, Protection and Insurance services
Oxford Mortgages
Taxation issues: Buy to let properties
Income tax (IT)
Income received as rent is taxable. It is an individual’s obligation to declare rent received as part of their self-assessment tax return.
Tax is charged in accordance with their income tax banding.
Which tax rate are you?
| Tax Rate | 2013 to 2014 | 2014 to 2015 |
|---|---|---|
| Starting rate for savings: 10% | £0 - £2,790 | £0 - £2,880 |
| Basic rate: 20% | £0 - £32,010 | £0 - £31,865 |
| Higher rate: 40% | £32,011 - £150,000 | £31,865 - £150,000 |
| Additional rate: 45% from 6 April 2013 | Over £150,000 | Over £150,000 |
Where an individual is acting as landlord and maintains the property, the income is treated as investment income by HM Revenue and Customs (HMRC); the rent is therefore not considered ‘relevant earning’ for pension contributions and no National Insurance contributions are payable.
Tax can be minimised through the deduction of ‘allowable expenses’ from the taxable rental income, some of which are:
- Interest paid on the mortgage
- Maintenance costs
- Letting agency fees
- Building and contents insurance costs
- Ground rent • Service changes
- Accountancy fees
Any tax due will need to be paid by the 31st of January the year following the end of the previous tax year.
Capital gains taxation (CGT)
CGT is payable when an individual sells a property that is not their main home at a profit.
An individual usually has an annual tax-free allowance of capital gains that they can make before CGT is charged. The allowance in the tax year 14/15 is £11,000.
The following CGT rates apply:
- 18% and 28% tax rates for individuals.(The tax rate you use depends on the total amount of your taxable income).
- 28% for trustees or for personal representatives of someone who has died
Again the individual is required to give the information of the sale to HMRC on their annual self-assessment tax return.
Tax can be minimised through the deduction of expenses:
- Solicitor’s fees
- Estate agent’s fees
- Costs involved in advertising the property for sale
- Costs incurred in increasing the property’s value (improvements, not the maintenance costs used against IT
- Stamp duty land tax
In some cases previous year’s losses may be used to reduce the CGT bill.
Any tax due will need to be paid by the 31st of January the year following the end of the previous tax year.
For information purposes only and does not constitute advice.
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