Tax – How are you affected

Tax – How are you affected

When it comes to property, it can be difficult to grasp which tax laws apply to you and how exactly they work. A homeowner that is letting out their property for a few months while they holiday may have very different tax requirements from a landlord who lets long term. However, they both need to understand the applicable tax laws for their own circumstances.

Buy-to-let is an attractive investment to many individuals with a diverse range of plans and goals. However, that attraction can be dulled by the complexities of capital gains, stamp duty, and tax relief on mortgage interest. A financial advisor could provide the relief and the insight you need, helping you understand your different legal obligations based on how you use your property. These are some of the tax rules, as well as relevant updates, that can help you stay on top of your taxes.

Stamp duty land tax

Most property buyers must pay stamp duty. The most common exception is first-time homebuyers who pay no stamp duty on homes under £300,000. Figuring out how much stamp duty must be paid is essential for any property investment and must be considered amongst the costs. The SDLT threshold stands at £125,000 for residential properties and £150,000 for other land and properties.

Capital gains tax

This mostly applies to property investors who have multiple properties and are selling

them. Capital gains are the increase in value of the property from the time you bought it to the time you sold it. Taxes must be paid on this, and the amount of tax payable differs, mostly based on your tax rate. Basic rate taxpayers pay 18% on buy-to-let properties while others might pay as much as 28% of the capital gains.

Tax relief on mortgage interest

Buy-to-let mortgages are essential for those buying a second property intended to be rented out, whether short-term or long-term. Regular mortgages are not applicable for these properties. Buy-to-let mortgages often come with a higher interest rate, but landlords can claim tax relief on the interest paid in some circumstances. Deductions for finance costs from property income are no longer applicable, replaced by a basic rate reduction from income tax liability. Understanding mortgage interest and claiming back as much as possible can help you maximise profits, but how much you claim back differs depending on your personal tax bracket.

Income from short-term lets

Renting your primary home or rooms on a short-term basis within it have their own tax implications. Registering and declaring any income higher than £7,500 to the HMRC is mandatory. Income gained from renting out a furnished apartment or home must be declared, too. These earnings are to be included on a manual tax return and is taken into consideration when you are told how much tax you must pay.

Again, a financial advisor can be essential in untying the knot that is your taxes. They can get a better idea of your assets and income to figure out which taxes and deductions are applicable. The risk of getting a high tax bill because of having your rental income discovered without declaring and paying taxes on it is much more expensive than doing your due diligence.

If you are thinking of letting your apartment out as a short-term let and would like to understand the tax implications further, contact us on 0131 610 1002 or [email protected]


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