If there’s one subject that makes many of us who are self-employed shudder, it is tax and an impromptu visit from HM Revenue & Customs.
As a landlord of an investment property portfolio unfortunately you have to pay tax on rental investment. There’s also capital gains tax to think about. Then there is inheritance tax (should it apply) to throw into the mix.
And that’s why here at Property Go-To Girl we’re providing a quick run-down on the type of tax incentives you can look to claim when investing in an HMO or other buy to let property in 2014 and for the foreseeable future.
Advice around tax for landlords is certainly badly needed - that's if a survey commissioned last summer by Paragon Mortgages is anything to go by. The finance company's research found that of those landlords who were interviewed for the study a massive 78 per cent of them admitted they were a bit baffled when it came to their property investments and tax. This is despite the fact some of those landlords who were questioned had more than 11 buy to let properties in their portfolio (yes, we were pretty stunned at that too!).
Tax you can expect to pay as a landlord
Once you have purchased your HMO or other buy to let and are happily collecting rental income, it’s time to consider Income Tax. Regardless of whether you live in the UK or abroad you will still have to pay this if you are receiving any kind of rental income. The amount you will pay varies depending on which particular tax band you’re on. Standard rate taxpayers are looking at 20 per cent while those who earn more will pay 45 per cent of what they receive in rental income. This must be declared on the year-end self-assessment tax form. The latter should be kept for up to six years in the event of a sudden visit from HM Revenue & Customs (we're keeping our fingers crossed here that this never happens to any of you).
The other big tax landlords have to pay is that of Capital Gains Tax. This is paid when the buy to let property is sold. It takes into account the amount of profit made. Again, this is paid on a sliding scale depending on your profit. If it’s £11,000 or less then there’s no tax to pay. More than this and it’s 18 per cent or 20 per cent depending on both your current income and the amount of profit amassed from the sale of the property.
Contemplating tax you will pay for inheritance purposes (ie on your death) doesn’t make for a pleasant hour’s mulling over. However, it must be looked at and considered. At this current moment in time tax is 40 per cent for a property which is in excess of £325,000 (if the recipients are single) and £625,000 for a couple. Of course you don't pay this - it's your children or whoever comes to own your property. But you've worked hard for that property investment so do look into this.
What can be written off against tax?
And now the good news. There are plenty of expenses which can be calculated and presented to the tax man/woman in order to bring down the amount of tax you must pay at the end of the financial year.
The main tax savings are in your property’s management and maintenance. They include:
When it comes to Capital Gains Tax there are also quite a few expenses which can be claimed back. This includes the cost of marketing your flat or house (ie online websites, producing a leaflet etc), any estate agency fees, the cost of stationery and stamps, even telephone calls to solicitors.
We hope the above has added to your knowledge of landlord taxes. Of course you could also speak to an accountant who specialises in dealing with property tax (many do) and let him or her deal with it all from scratch. But at least the above shows what receipts and other paper work you need to hang on to in the meantime. Happy hoarding folks!
I'm Jacquie the Property Go-To Girl. I am passionate about property. I love to help people make the most out of their property investments!