Landlords - Do you know your tax liabilities?

Published: 08/04/2024

The world of buy-to-let investments is always evolving, and staying on top of the latest changes is crucial for success. Here’s some valuable insights to help you navigate the maze of income tax and optimize your  investments. Remember, it's always wise to consult with your accountant or a tax specialist before making any decisions.
 
Wondering about the current income tax rates? In England, Scotland, and Wales, the personal allowance for income tax stands at £12,570, frozen until 2028. But keep in mind, your tax situation can vary depending on factors like your total income, with the personal allowance decreasing once your net income exceeds £100,000.
 
For landlords in England and Wales, income tax rates range from 20% for earnings between £12,571 and £50,270, to 40% beyond that threshold. Income surpassing £125,140 falls under the additional rate band, taxed at 45%.

 
Now, let's delve into some essential tax changes for landlords:
 
 
Changes to Mortgage Interest Deductions
 
Since April 2020, landlords can no longer deduct mortgage costs from rental income. Instead, they receive a tax credit based on 20% of mortgage interest payments.
 
 
Stamp Duty Threshold Increase
 
Good news! The nil-rate threshold for stamp duty tax doubled from £125,000 to £250,000 in England in 2022. This means potential savings for landlords, although the 3% surcharge on additional properties remains.
 
 
Corporation Tax Updates
 
As of April 2023, corporation tax increased to 25% for those with profits exceeding £250,000. However, landlords with profits below £50,000 remain at the 19% rate, with a gradual increase for profits between £50,000 and £250,000.
 

What about deductible expenses? 

Landlords can claim various costs associated with running rental properties, from letting agent fees to property maintenance and utilities. Additionally, tax relief may apply to replacing domestic items like furniture.
 
For those experiencing void periods, there's potential to claim back some costs on your tax return. And consider the option of moving properties into a company structure for potential tax efficiency, although it's essential to weigh the associated costs carefully.
 
When selling your buy-to-let property, make use of all available reliefs, including estate agents' fees and renovation costs. Remember, seeking professional advice is crucial for making informed decisions regarding property, taxation, and financial planning.
 
Keep in mind that the information provided here is for guidance only, and it's always wise to consult with experts before making any significant decisions.