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  • Writer's pictureNicola Gwyther

Buy-to-Let - what taxes do you need to pay?

The tax implications of a buy-to-let investment in the UK can vary depending on your individual circumstances, but there are a few key things to be aware of.

Income tax

The rental income you receive from a buy-to-let property is taxable income, and you must pay income tax on it at your usual rate. You can deduct certain expenses from your rental income to reduce your taxable profit, such as letting agent fees, maintenance and repairs, and council tax.

Mortgage interest relief

In 2020, the government phased out mortgage interest relief for landlords. This means that you can no longer deduct mortgage interest payments from your rental income to reduce your taxable profit. Instead, you can claim a tax credit worth 20% of your mortgage interest payments.

Capital gains tax

When you sell a buy-to-let property, you may have to pay capital gains tax on the profit you make. Capital gains tax is charged at a rate of 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.

Stamp duty

When you buy a buy-to-let property, you will have to pay stamp duty land tax (SDLT). The amount of SDLT you pay depends on the value of the property you are buying.

Limited companies

Some landlords choose to own their buy-to-let properties through a limited company. This can have certain tax advantages, such as the ability to deduct all mortgage interest payments from taxable profits. However, there are also some additional complexities involved in owning property through a limited company, and you should seek professional advice before making a decision.

Overall, the tax implications of a buy-to-let investment can be complex, and it is important to seek professional advice to ensure that you are meeting all of your tax obligations.

Here are some additional things to keep in mind:

  • You may also be liable to pay National Insurance contributions on your rental income.

  • If you have a buy-to-let property overseas, you may have to pay taxes in both the UK and the country where the property is located.

  • If you are letting out a room in your own home, you may be able to take advantage of the Rent a Room scheme, which allows you to earn up to £7,500 per year tax-free.

If you are considering a buy-to-let investment, it is important to carefully consider the tax implications before making a decision.

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