What Is Landlord Tax? Everything You Need To Know

There’s potential to make good money as a landlord in Britain, but like any other occupation, owning property makes you subject to taxation – especially if you’re renting it out. Taxes associated with buy-to-let are often…

5 Minute Read

Last Updated: 6th December 2022

There’s potential to make good money as a landlord in Britain, but like any other occupation, owning property makes you subject to taxationespecially if you’re renting it out.

Taxes associated with buy-to-let are often known collectively as “landlord tax”. But what is landlord tax, exactly? And how does it affect you as a property owner? Here’s what you need to know…

Types of landlord tax

When people talk about landlord tax, they could be referring to as many as four different tax types, including Stamp Duty, Income Tax, Capital Gains Tax, and Inheritance Tax.

As a landlord, you need to know about them all, and we explore each in greater detail here.

Stamp Duty

For every property you purchase, you need to pay a one-off tax known as “Stamp Duty”.

Stamp Duty rates differ depending on the price of the property, with higher-valued buildings carrying higher tax charges.

Stamp Duty is currently valued at 3% for homes worth up to £125,000. If the property is worth more than this, the following rates apply:

5% tax on the portion from £125,001 – £250,000

8% tax on the portion from £250,001 – £925,000

13% tax on the portion from £925,001 – £1.5 Million

15% tax on anything over £1.5 Million

Income Tax

As a buy-to-let landlord, you must declare all rental income you receive on your tax return and send these numbers to HMRC before the Self Assessment tax return deadline. You can, however, reduce your income tax by claiming for allowable expenses (i.e. money spent on property upkeep, management fees, mortgage interest, repairs, and insurance.

HMRC request that all landlords keep the income and expenses related to all properties for a minimum of six years so once a tax year is over.

Capital Gains Tax

Capital Gains Tax applies to landlords who have made a profit on sales of buy-to-let properties. So, if you bought a place for £125,000 and sold it to a new buyer for £150,000, you’d need to pay Capital Gains Tax.

Capital Gains Tax is charged at either 18% or 28% of the total profit, depending on how much you’ve made.

It is often possible to reduce Capital Gains Tax by listing expenses you’ve incurred in buying, selling or enhancing the property (legal fees, advertising fees, stamp duty, estate agent fees) in your Self Assessment tax return.

Inheritance Tax

If you end up becoming a landlord after inheriting property as part of an estate, you may still need to pay tax.

When the estate is worth more than £325,000, inheritance tax is charged at 40%.

Tax software for landlords

Managing premises and property income as a Landlord can make self-assessment tax returns complicated and time-consuming.

There are many tax elements to deal with when it comes to the property sector. When you’re a landlord, it’s imperative to keep these affairs in order so the taxman stays happy.

GoSimpleTax tax software doesn’t just perform all the tax calculations for you, it also lets you submit these figures directly to HMRC in the right format. Try it right now by signing up to our free trial. If you have any questions, simple head over to our contact page. Our team will be delighted to help.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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