Landlord tax considerations
In 2016 the government introduced a number of disadvantageous changes to the tax that landlords pay and can claim back.
Stamp Duty Land Tax (SDLT)
You pay stamp duty on the purchase of any residential property costing more than £125,000. The amount you pay is dependent on the property value, as you pay different rates for each ‘portion’ of the property cost, this is outlined in the table below.
Last April the government introduced an additional tax on any property owner purchasing a second residential property. On top of the rates outlined above, anyone purchasing an additional residential property for £40,000 or more must pay an additional 3% stamp duty.
Capital Gains Tax
It is likely that landlords will have to pay Capital Gains Tax on any profits that they make when selling a property that is not their home. Over the pastdecade there have been a number of changes to the ways in which Capital Gains Tax is paid and presently the rate applicable to gains made on the sale of the property is 28%. This tax is payable regardless of whether or not a landlord plans to reinvest the profits into future properties.
Restriction of allowable costs
All landlords with residential property inside or outside the UK can claim tax relief for costs such as mortgage interest incurred on the property they let. Currently the relief is set at 40% and 45%.
Wear and tear allowance
If you let fully furnished properties, you used to be able to claim a wear and tear allowance of 10% of the net rent you receive. This is intended to cover any items that would normally be provided in unfurnished accommodation, including fridges, carpets and curtains etc. In April 2016 this allowance was adapted so that all landlords of residential housing can deduct the costs they actually incur on replacing furnishings. The relief will be applied 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.
If you have any questions about the tax changes above then please contact our residential sales and letting specialist, Diana Warr.