You may be thinking about purchasing a buy to let property and have already considered the following:
- Local market
- Finance arrangements
- Tenant targets
- Rental yield
- Capital growth
- Insurance (building and landlord)
- Legal fees
However, have you considered the following tax consequences of a buy to let property?
Stamp Duty Land Tax (SDLT) in England and Northern Ireland
SDLT is due on all property purchases at the standard rates shown below. However in April 2016 new rules were introduced meaning landlords pay an extra three percentage of SDLT on each band when they purchase a buy-to-let property.
|House Price||Standard Rate||Buy to Let / Second Home Rate|
|Up to £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1.5m||10%||13%|
The additional SDLT rates can make a substantial difference to the standard rates, particularly if the property purchase price is high.
For example, should you purchase a £200,000 buy to let property the total Stamp Duty payable would total £7,500, this is broken down as follows:
|Up to £125,000||3%||£3,750|
|£125,001 to £200,000||5%||£3,750|
|Total Stamp Duty Due||£7,500|
In addition, married couples or civil partners are seen as one unit by HMRC for SDLT. Therefore if a husband owns a property and his wife buys a property, the additional rates for a second property would apply even though they legally own the properties separately.
SDLT is not due in Scotland and Wales, an equivalent tax is due in those countries. Land and Buildings Transaction Tax (LBTT) is due on property purchases in Scotland and Land Transaction Tax (LTT) in Wales. You can find the rates on the relevant government websites.
The deadline for reporting and paying the SDLT on a purchase of a property in England or Northern Ireland is now 14 calendar days. If this deadline be missed – penalties will apply. The period for paying LBTT on properties in Scotland, or LTT for purchases in Wales is 30 calendar days.
Value Added Tax (VAT)
VAT is not due on residential properties however if you were to buy a commercial property you may be liable to 20% VAT on the purchase price of the commercial property.
Expert advice should be sought if you are considering buying a commercial property. We have a specialist team at MHA Tait Walker who can assist you with any queries you have.
An area commonly overlooked, but one of significant importance, is your personal requirements once you’ve purchased a buy-to-let property.
In purchasing a second property, and receiving rental income, you’ll meet HMRC’s guidance on who needs to complete a tax return. The only exception to this rule is if the rental income you receive in the year is less than £1,000.
Registering for Self-Assessment
You will need to register for self-assessment by 5 October following the end of the tax year you started receiving rental income e.g. 5 October 2019 for a property first rented during the tax year 6 April 2018 to 5 April 2019. By registering you’re making HMRC aware you need to complete a tax return. If this is done incorrectly you may be required to complete a tax return for an incorrect year.
Once HMRC have processed your application you will be issued with a Unique Taxpayer Reference, otherwise known as a ‘UTR’. This is a 10-digit reference you need to complete your tax return.
What are the Self-Assessment deadlines?
You submit tax returns for tax years, not calendar years, and you do this in arrears.
For example, for the 2019/20 tax year, running 6 April 2019 to 5 April 2020, you would:
- need to register for Self-Assessment by 5 October 2020 if you’ve never submitted a return before
- submit your return by midnight 31 October 2020 if filing a paper tax return
- submit your return by midnight 31 January 2021 if filing online
- pay the tax you owe by midnight 31 January 2021. Sometimes you will be required to make interim payments on account towards your future liabilities.
Failing to meet one or more of these deadlines, you will be liable to HMRC’s strict penalty charges.
How can we help?
In our next blog of the property series we will discuss how to account for rental income and expenditure and what expenditure is allowable for tax purposes.