For further advice, specific to your business expenses, please seek professional advice from an accountant or tax advisor.

 The tax system for businesses including landlords can be very complicated, especially to those new to the industry and therefore we hope to simplify some of the rules during this article.

The taxes that may be applicable to UK landlords include capital gains tax, stamp duty, corporation tax as well as expenses and therefore it may feel a bit overwhelming to understand the system and ensure that calculations are correct.

In addition, there have been a number of changes to the tax system over recent years and therefore staying on top of current legislation is essential for landlords.

During this article we will explore the current tax rules for 2021/22 for UK landlords including covering what taxes landlords need to pay, tips for tax efficiency as well as reviewing allowable property expenses, however, this article has been published as a general overview.

For specific tax advice for your business and circumstances, we highly recommended that professional tax advice is sought in order to ensure that the right level of taxes is being paid and allowed for.

What Taxes do Landlords need to Pay?

As a landlord, or property investor there are three stages of property transactions:

• When property is purchased
• When property is let
• When property is sold

Each of these stages has differing rules of what taxes need to be paid and when.  Let’s review each stage one and at a time.

• When a property is purchased stamp, duty is payable

Stamp Duty Land Tax or SDLT is the type of tax payable when property or land is purchased over certain thresholds within England and Northern Ireland. The current rules, known as the stamp duty holiday scheme, have lifted the threshold at which stamp duty is applicable in some circumstances to a residential property value of £500,000.

The stamp duty holiday scheme applies to all residential properties including buy-to-let investments, however, there may be a stamp duty surcharge payable if the investor already owns a property or purchases an investment property.

The current holiday scheme is due to end in stages, firstly the threshold limit is due to drop at the end of June 2021 to £250,000 and then the scheme will end completely at the end of September 2021, when the threshold returns to pre-pandemic levels of £125,000.

The stamp duty holiday does not impact the stamp duty payable on non-residential land and properties where the threshold remains static at £150,000.

Any stamp duty payments are required to be made along with the submission of an SDLT return to HMRC within 14 days of completion of a property purchase.  Typically, the solicitor, agent or conveyancer may complete this process for the purchaser, however, it can be undertaken personally.

Stamp duty is calculated by the use of a banding system depending on the location and the personal circumstances of the buyer, and therefore for specific calculations, please seek the expert advice of a personal tax specialist.

• When a property is let, the income needs to be recorded and appropriate taxes paid

Where income is received from letting property, the property owner may need to complete a self-assessment tax return to HMRC reporting their income earned and any allowable expenses.

The level of tax payable will depend on a number of personal and financial circumstances of the landlord, including any other streams of income. The tax due will be calculated by deducting any personal allowance and then by applying tax bands depending on the total income earned.

Landlords are also entitled to £1,000 tax-free property allowance, therefore if the rental income received within the tax year is less than £1,000, it is often not reportable to HMRC.

The deadline for submitting an electronic self-assessment tax return to HMRC is the 31^st of January following the end of the tax year, and any tax due is also payable on this date.  Should the reporting process be undertaken via paper, the deadline is earlier, on 31^st October following the end of the tax year.

In addition, class 2 National Insurance may also be payable in certain circumstances.

Should you require any further assistance with income tax calculations, please see specialist advice from a personal tax advisor.

• When a property is sold capital gains tax may be payable

When a property is sold that is not your first residence, capital gains tax maybe be due on the profit of the property transaction. The calculation for any capital gains tax due is based on the ‘gain’ of the transaction as follows:

The market value of the property minus the costs of any major renovations and selling including estate agent fees and solicitor fees.

There are different percentage rates for calculating capital gains tax depending on the landlord’s personal tax circumstances and banding. The annual exempt threshold is currently £12,300 for individuals however, for simplicity, there is a free calculator tool available on the government’s website.

However, if the landlord or property investor is eligible for any tax relief such as lettings relief or private residence relief, it may be advisable to seek the advice of a personal tax advisor.

Any capital gains tax due is payable within 30 days of the completion of the property sale.

What is the Difference between Operating as an Individual Landlord or as a Business?

There are a number of ways that a landlord or property investor can be set up in order to let or renovate and sell property; either as an individual or as a business.

As we have discussed, individuals would report their earnings from the property on a self-assessment return, whereas businesses would need to pay corporation taxes.  The current rate of corporation tax is 19%, however, the government have planned to increase this to 25% by 2023.

Businesses have different reporting duties required of them instead of submitting self-assessment returns to HMRC, they must register for corporation tax and submit corporation tax returns.

For tailored advice in relation to your business structure, the differences between tax calculations and the reporting requirements, please consult a professional tax advisor.

Why not visit or contact your local Ashtons branch?

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What Property Expenses Can Landlords Claim?

Landlords claiming property expenses, reduce their profits and therefore reduces the tax liability due. There is a range of property expenses that can be claimed for the day-to-day running expenses of the business including; insurances, interest on loans, services such as cleaning and gardening, professional advice and business running expenses such as phone calls, travel and stationery.

In addition, when a property is unoccupied additional expenses can be claimed to cover the utility bills and council tax, and bad debts can be claimed for any rent arrears. In cases of rought tenants, landlords should upkeep a buffer budget to handle unexpected cost such as tenancy cleaning Fantastic Cleaners say.

For further advice, specific to your business expenses, please seek professional advice from an accountant or tax advisor.

Summary

Being a landlord or property investor can be an exciting opportunity however there are also considerations such as the taxes to be paid, the expenses that can be legitimately claimed and the reporting requirements.

This article has provided an overview of the taxes payable by UK landlords, however, should you need any assistance on your specific circumstances, please feel free to get in touch with our friendly team.

If you’d like to find out more about how Ashtons can help you contact one of our branches for further information.