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BTL and Tax

Anyone considering a buy-to-let property investment must first take into account any subsequent tax obligations that may apply. A buy-to-let mortgage can be a profitable long-term venture, though is not without its own immediate and on-going costs.

Detailed below are the most prevalent and important tax considerations to factor in, if considering applying for a buy-to-let mortgage in the UK:

Capital Gains Tax

If you are currently within the basic rate tax band, you will be liable for capital gains tax (CGT) on your buy-to-let property of 18%. If you are within a higher tax bracket, you will be liable for CGT at a rate of 28%.

Should you decide to sell your buy-to-let property at a later date, CGT is usually payable if the subsequent gains are higher than the annual £12,000 or threshold (accurate for the 2019/20 tax year). This threshold is doubled to £24,000 for couples with joint ownership of buy-to-let properties sold for profit.

As it is possible to reduce CGT obligations by offsetting a variety of costs (such as estate agents fees and stamp duty), it is important to speak to an independent adviser to avoid overpaying. Contact an experienced broker to learn more about CGT obligations for buy-to-let investors.

Income Tax

The income you generate in the form of monthly rent payments will be taxable and must therefore be declared on your annual self-assessment. Depending on the tax band you are in at the time, income tax may be payable at a rate of 20%, 40% or 45%.

Again, it is possible to offset your tax obligations against a variety of expenses, which include property maintenance, letting agent fees, council tax and refurbishments. Consult with an independent expert to learn more about income tax payments as a buy-to-let landlord.

Mortgage Interest Tax Relief

As of 2020, significant changes to the previous mortgage interest tax relief system have come into effect for buy-to-let property owners.

The amount of interest payments landlords are able to deduct has been reduced by 25% a year over the past four years, now replaced by a 20% tax credit for the entire amount – as detailed in the table below:

Tax Year % of interest payments eligible for Mortgage Interest Tax Relief % of interest payments eligible for 20% tax credit
2016/17 100% 0%
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
From 2020 0% 100%

If you have any questions or concerns regarding your tax obligations and entitlements as a buy-to-let landlord, book an obligation-free consultation with an independent broker to learn more.

Last Updated: Apr 9, 2020 @ 12:59 pm
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