Tax on buy to let properties

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Whether you’re a first-time buyer looking to rent your property out to tenants or you’re building up your asset portfolio, the right buy-to-let mortgage is essential to making your investment a success.If you are asking yourself the question ‘how much tax do you pay on a buy-to-let?’ or wondering about the financial responsibilities if you rent out a property, our expert advisers are fully qualified to help. In the meantime, here’s an initial guide.

The following information covers the basics of tax rules on buy-to-let properties, to include, income tax when you let property, what expenses are allowable against rental income and what landlords should know.

Before making any decisions, we would recommend talking to an expert in navigating the mortgage market. At Private Wealth Mortgages our qualified advisers take the time to get to know you, your financial situation and personal goals, before presenting you with a range of appropriate options, suited to you. What’s more, we offer a FREE no-obligation initial consultation.

Property tax: Stamp duty

Stamp duty, also known as Stamp Duty Land Tax, must be paid within 30 days of the purchase of every property and is usually transferred by your solicitor on your behalf. The amount is worked out as a percentage of the value of the property and it applies to buy-to-let. The amount you pay in stamp duty increases if you already own a home and are investing in a second property. Any subsequent purchases will also be subject to the higher rate of tax.

Paying tax on your income

We are often asked the question; ‘do I need to declare rental income?’. Although there are exceptions and various thresholds set by the government, everyone is subject to tax on money they earn, whether it’s through paid employment or being a landlord. This includes income from a buy to let property and the exact amount you are required to pay will depend on your individual financial circumstances.

You can either accept rental income as an individual, paid directly into your personal bank account, or paid into a business that you have set up. Whichever way you choose to manage your investment, there will be tax payable on the amount you earn. 

If you decide to declare the income you receive in a self-assessment tax return, this will be calculated based on your personal circumstances. It is calculated as follows: 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for those who pay an additional rate*.

*This information is correct at the time of publishing, but we recommend you seek professional advice from a qualified accountant before making any decisions. At Private Wealth Mortgages, we have a number of trusted partners that we can recommend.

What expenses are allowable against rental income

As a landlord you have to pay tax on the profit you make from renting out your property. Your profit is calculated by deducting ‘allowable expenses’ from your rental income. An allowable expense is anything you have spent wholly and exclusively for the purposes of renting out your property. Some examples of allowable expenses are; maintenance and repair costs, water rates, council tax, gas and electric (if paid by you as a landlord) and property management fees. 

However, it is important to remember each individual case is different and again we recommend getting professional financial advice from a qualified accountant prior to becoming a landlord or submitting any accounts to HMRC.

What are the changes to buy-to-let tax relief?

As part of allowable expenses, landlords could previously deduct mortgage interest, from their earnings to reduce the income tax they needed to pay. However, under new buy to let rules being phased in by April 2020, income tax relief for residential landlords will be a basic tax reduction of 20% on whichever of the following is the smallest: Finance costs; total interest on mortgage, loans or overdraft, property profits; net rental income or adjusted total income; earnings after deducting losses, tax relief and personal allowance.


These new tax rules for landlords means that tax relief is given as a reduction in tax liability instead of a reduction to taxable income, meaning landlords will have to declare all of their rental income, pay income tax on the full amount, and then claim back 20% of this as credit, or 45% for those who receive the highest rate.

Capital Gains Tax

You are liable to pay Capital Gains Tax if you make a profit on the sale of a property that’s not used as your residence. This is because any additional property you may own, or sell is deemed to be an asset from which you may profit.

It’s important to remember the Capital Gains Tax you are liable for is the amount of profit you have made from selling a property, less some of the following legitimate tax-deductible expenses: solicitor fees, estate agent fees, stamp duty and the cost of advertising.


Seeking help from an expert

The financial information in this guide has been compiled to the best of our knowledge at the time of writing. We recommend, however, that you get qualified advice from the appropriate professionals before making any decisions about investing in property or taking out a buy to let mortgage.

Representing your interests, rather than those of the lender, our expert team of advisers have access to the ‘Whole of Market’ most up-to-date products, meaning that they have a greater chance of finding that perfect buy to let mortgage for you. We also work with a number of trusted associates that include solicitors, accountants and tax specialists.

What’s more, we offer a free, no-obligation initial consultation, so give us a call on 01403 270 006 or email:


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Private Wealth Mortgages Ltd is authorised and regulated by the Financial Conduct Authority. FCA Number: 445980

Private Wealth Mortgages Ltd, Hillreed House, 54 Queen St, Horsham, West Sussex, RH13 5AD

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