It cannot be disputed that property taxes can be super complicated, particularly when it comes to new landlords. Getting a property all ready to rent comes with a number of steps such as choosing tenants and deciding on what you will do with this anticipated new income. With a flurry of all these activities, you might not remember your taxes.
It can be extremely time-consuming to consider all the factors that come with sorting your taxes at the end of each financial year such as the capital gains tax, corporation tax, expenses, stamp duty and much more. This is precisely where this guide could help you out! It discusses some of the most vital tax-related updates and news that you will be required to pay as a landlord. For instance, you must know how to make sure that you pay your fair share of taxes, clarify all the key terms as well as get all the necessary tax updates for 2019-2020.
We will address some crucial points on this guide, such as the taxes that need to be paid by landlords and tax-effective property ownership. Remember that this guide is a general overview of the tax landscape for landlords. You must get in touch with a property tax specialist for advice if you are looking for details on your particular circumstances and requirements.
What Taxes Must Landlords Pay?
As a landlord, you must pay tax every year you let your property, when you buy it and when you sell it. These are the three key moments in the lifecycle of property tax. For convenience and brevity, we will talk about the first two types, i.e. when you buy a property or let it.
Stamp Duty – When You Buy A Property
If you buy any kind of property in the UK at a certain price, you will have to pay Stamp Duty and Land Tax (SDLT) on it. Having said that, the exact amount of tax that you need to pay depends on the exact value of your property. It will change according to your circumstances and location. Hence, it would be best if you always looked for professional advice when it comes to queries related to personal tax.
In Northern Ireland and England, people pay SDLT on residential properties that are worth £125,000 or more. You may end up paying a higher rate of SDLT at 3% over and above the normal SDLT rates, if you are buying a second residential property for more than £40,000. There are some generous reliefs available which could make use of to reduce your SDLT bill like Multiple Dwellings Relief, if you are buying more than one property. For non-residential properties, the tax is on land that is worth £150,000 or more.
Furthermore, you must always send an SDLT return within 14 days of completion from 1 March 2019 of the purchase to HMRC. Your agent, conveyancer or solicitor can also carry out this process on your behalf if you have hired one. Alternatively, you can pay the tax after filing the return yourself too.
In Scotland, property buyers must also pay LBTT or the Land and Buildings Transaction Tax on residential properties that are over £145,000 as well as for non-residential properties that are worth over £150,000. In addition to that, you might also be eligible for an Additional Dwelling Supplement that is payable on properties that are worth over £40,000. You must pay this tax if you own a residential property and are thinking of buying another one. Moreover, all LBTT must be paid through an online portal to Revenue Scotland.
It is also noteworthy that property buyers in Wales must pay the LTT or Land Transaction Tax on residential properties that are worth over £180,000 as well as on non-residential properties that are worth over £150,000. The situation in Wales is similar to that in Scotland. There exist additional charges if your residential property is over £40,000 and you own another one already. In such a scenario, you must also send an LTT return and pay it to the Welsh Revenue Authority within 30 days of the completion of the purchase. Your agent, conveyancer or solicitor can carry out this process on your behalf if you wish.
All these rules are fundamental. If you are buying a property for the first time, the stamp duty payment threshold is usually higher. Therefore, you might not need to pay any tax at all. In the case of buying-to-let, you will find that the stamp duty rates are essentially tiered. They start at a rather low value than the ones for other home buyers.
Important Income Tax News For 2019/2020
The income tax that you need to pay varies according to income. From 2019-2020 in England, you do not have to pay any income tax in case your annual earnings are below £12,500. You simply need to pay the basic rate, which is 20% of your total income or whatever you earn after that income including and up to £50,000. The 40% tax which is on the higher side applies to all income that is above £50,000. In case you make over £150,000, you will need to pay the tax at the rate of 45%.