While this strategy has the potential to enhance your property and overall
investment portfolio, the associated costs and taxes can be complex and
overwhelming. You can benefit from the expertise of accountants
for landlords.
A buy-to-let mortgage often requires a higher initial
investment than a standard mortgage. You typically need to pay a deposit of
around 25% (though it can vary). There are also various tax implications linked
to buy-to-let properties:
·
Income tax - This tax applies to landlords who rely on rent as their
income. If you fall in this category, you are required to declare the rent you
earn in your self-assessment tax returns. The tax on your rental income will be
20%, 40%, or 45%, depending on whether you are a basic-rate, higher-rate, or
additional-rate taxpayer.
That said, you may be able to reduce your taxes by deducting allowable expenses from your rental income. These expenses include letting agent fees, maintenance costs, and mortgage interest payments. Accountants for landlords are adept at identifying these deductible expenses and can incorporate them into your tax calculations, ensuring that you pay the correct amount of tax.
·
Capital
gains tax - When considering a
buy-to-let investment, most investors expect to profit from the property's
increasing market value. However, selling a buy-to-let property entails paying
capital gains tax on the profit, which is calculated after deducting allowable
costs like stamp duty, improvement costs, legal fees, and the original purchase
price. Accountants for landlords can provide detailed advice on these tax
obligations to help investors understand their potential tax liabilities when
selling a property.
·
Stamp duty
tax - Accountants for landlords also
specialise in assessing stamp duty tax eligibility. This tax usually affects
properties below £300,000 (but it's waived for first-time buyers). The cost of
the property determines the rate, with a 3% extra charge on second properties.
In certain situations, a refund may be available if the first property is sold
within 18 months. Accountants for landlords can help investors understand if
they qualify for any stamp duty reliefs or refunds, potentially lessening their
tax obligations.
These are just some taxes that apply to landlords and property investors in a buy-to-let scenario. To learn more, arrange a meeting with Allenby Accountants by calling 0208 914 8887.
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