Decoded: taxes payable by landlords and property investors

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3 Oct 2018

Decoded: taxes payable by landlords and property investors

Author: Grace Watson

If you’re a new or ‘accidental’ landlord, being aware of the various types of property tax can be, well, taxing. So here’s your handy guide to some of the most frequently occurring taxes.

Stamp duty land tax (SDLT)

Most landlords now know about the 3% surcharge on second properties – this is on top of the standard stamp duty, which is calculated according to the price of a property. The government has a useful stamp duty calculator which you can use to work out how much tax you will need to pay – and it must be paid within 30 days of you taking possession of the property.

Income tax

After your initial personal allowance of £11,850 (2018 -19), you must pay tax on your profits from letting property, at a rate of between 20% and 45%, depending on your total income.

  • The first £1,000 of a property you personally own is tax free
  • Any annual profit from property over £2,500 must be declared on a self-assessment tax return
  • For annual profit between £1,000 and £2,500, you should contact HMRC for advice.

Section 24, announced in the Summer Budget 2015, is a major change in the way landlords claim tax relief. In the past, 100% of the interest on any finance (such as the mortgage or other loans) could be offset against your earnings at your usual tax rate. But Section 24 is now being phased in, which means only a 20% tax credit is available by 2020/21 and:

  • for the tax year 2017-18, you can offset 75% of your interest payments against earnings
  • for the tax year 2018-19, you can offset 50% of your interest payments against earnings
  • for the tax year 2019-20, you can offset 25% of your interest payments against earnings
  • for the tax year 2020-21, only 20% of your interest payments will be able to be offset.

This could potentially push you in the higher tax bracket, if you are not already within it, so you should talk to an expert in landlord tax if this is the case.

Other allowances – such as agent fees, maintenance, business costs, insurance etc. – are unaffected by the change.

Changes to wear and tear allowance

The old ‘wear and tear allowance’ has been swapped for the new Replacement Domestic Item relief. When carpets, curtains, furnishings and any appliances you provide wear out, you may claim this relief, as long as you replace the items “like for like”. For anything which could be construed as an upgrade (e.g. a fridge freezer to replace a standard fridge), you can only claim relief on the amount you would have paid for a similar item.

Capital gains tax

Any profit you make on selling a property is considered a capital gain, regardless of how much equity you have. So if you bought a house for £75,000 and are now selling it for £125,000, your capital gain is £50,000 and you can be taxed on this, minus your annual allowanced of £11,700 for the 2018-19 tax year, assuming you have not already used it up on another property.

If you are registered for self-assessment, payment is due in the same timeframe as income tax, so if you sell now, capital gains tax will be due by 31st January 2020.

Losses can be deducted from gains made on other properties, or held over for up to four years which can help if, for example, you are planning to sell a property which will incur capital gains tax in the future.

There are other reliefs available too, such as if you have lived in the property, so it is definitely worth seeking advice from a property tax expert.


For more information on how to keep on top of tax changes for landlords and for advice on sound property investments, contact your local Romans’ lettings branch. Need a refresher of this year's key tax dates? Check out our last article, Decoded: how to keep on top of tax changes as a landlord.


See more:

Decoded: How To Keep On Top Of Tax Changes As A Landlord

Decoded: Accounting And Ownership For Property Investors


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