It is important to remember that the stamp duty system was reformed in December last year to make it more similar to the way income tax works. Under the new system, rather than paying a percentage of the total property price, you will pay different rates for different bands.
For example, you won’t pay any stamp duty land tax on the first £125,000 of the purchase price, but you will pay 2% on the proportion which is between £125,001 and £250,000.
So, if you are buying a £200,000 buy-to-let property, you’ll pay £1,500 in stamp duty.
If your property costs more than £250,000, then you’ll pay 5% stamp duty on the amount of the purchase price which is between £250,001 and £925,000.
You’ll pay 10% on anything between £925,000 and £1.5 million, and 12% on everything above £1.5 million.
When it comes to selling your property, the good news is you can offset the stamp duty you paid against your overall profit in order to reduce your capital gains tax bill (more on this later).
You must declare the rent you receive as a buy-to-let landlord on a self-assessment tax return.
The amount of tax you’ll pay depends on your tax band, so if you’re a basic tax payer, you’ll pay 20%, but you could pay as much as 40% or 45% if you pay tax at the higher rates.
Thankfully there are a few perfectly legitimate ways to reduce the amount of tax you pay on the buy-to-let income you receive.
One way is to offset your mortgage interest as an expense against your rental income. You cannot, however claim tax relief on capital repayments.
You can however deduct letting agency fees, insurance premiums and any utility bills you pay for the property. You are also able to deduct the cost of any repairs, and a ‘wear and tear’ allowance of 10% towards the cost of redecorating and replacing carpets etc.
Capital gains tax
When it comes to selling your buy-to-let property, you are required to pay capital gains tax (CGT) on any profit you make which is bigger than the CGT annual allowance – which currently stands at 11,100.
This tax is charged at 18% if you’re a basic rate taxpayer or 28% if you’re a higher rate taxpayer.
To calculate your position when it comes to CGT, the seller must deduct the original cost of purchasing the property from the amount the property is sold for.
The good news is that any costs you have undertaken in improving the property, i.e converting a loft or adding a conservatory, can also be deducted.
“Remember that you can also subtract any loses you may have made on other properties in the same financial year. There is also no restriction on the number of loses that can be claimed.”
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