18 May 2018

Property Tax – The ins and outs

Buying or selling property for yourself or as a buy-to-let investment can be a stressful business, even before you factor in the taxes you’re required to pay. However, by taking the time to fully understand and plan for your property tax obligations, you can put yourself ahead of the game. 

So, what taxes are you liable to pay on your property and what can landlords claim as expenses?

Stamp Duty Land Tax 

If you purchase a home that’s worth over £125,000, you are liable to pay Stamp Duty Land Tax (SDLT). Unless it’s your first home, then the threshold is £300,000. 

The amount of SDLT you are required to pay depends on the purchase price of the property. 

If the property in question isn’t your first home, you are expected to pay an additional 2% on the next £125,000. You would pay 5% on the next £675,000 on top of this; 10% on the next £575,000 (i.e. “the portion from £925,001 to £1.5 million”) and 12% on anything above £1.5 million. 

Companies automatically pay the additional SDLT.

Capital Gains Tax

This is a tax on any profit you might have accumulated when selling a property. If you pay higher rate Income Tax, you will owe 28% on your gains from residential property and 20% on gains from other chargeable assets. 

If you only pay basic rate Income Tax, the rate you pay “depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets”.

There are exemptions…

You are not liable to pay Capital Gains Tax if you’ve never let your property and have used it as your main residence for the entire duration of the period of ownership. In addition, if the grounds of the property don’t exceed 5000 sq metres, you won’t have to pay a penny. Principal Private Residence Relief exists for this reason. 

Planning point  Spouses may only have one Principal Private Residence between them.

Changes to Buy to Let Tax Relief 

Property tax isn’t just confined to private residences. If you already rent out your property or are planning to do so, take note… 

Since Spring 2017 landlords have been required to declare their rental income differently. Furthermore, from 6th April 2017, most rental income is to be treated as taxable on a cash received basis.

Landlords were previously only obliged to pay income tax on their profits and many would subtract mortgage expenses from their rental income in order to reduce the total bill. 

Changes are currently taking effect which mean that landlords can no longer do this. A new, markedly less substantial tax credit has replaced the old system. In brief, as explained by The Mortgage Works, tax relief is now “restricted to the basic rate of income tax, [and] Relief will be given as a reduction in tax liability instead of a reduction to taxable rental income”. Overall, this has meant that landlords’ tax bills have increased.

Allowable Expenses for Landlords 

Although these changes have hit landlord profits, there are a range of allowable expenses which can be claimed to offset any profits lost to tax. Most of these relate to the cost of maintaining the property. For example, water, gas and electricity expenses can be deducted, along with any cleaning or gardening costs. Letting agents’ fees, legal costs and accountant’s fees may also be deducted and you can also claim for the cost of advertising for tenants.

Limited Company ownership

Where properties are owned by companies the rules are often quite different. Contact us for more details about your specific situation. 

Expert Property Tax advice

If you are unsure about your property tax obligations or what you can claim back as a landlord, contact our property team on 0115 964 88666 or email enquiries@rwbca.co.uk today for support. 


The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.