Property Know

From previous posts we have mentioned buying to let is an option that people should consider getting into. But becoming a landlord can be a scary and complicated procedure. The main worries when becoming a landlord are things like tax, HMO’s letting agents etc.

When tax is involved in anything it worries most of us, unless you use an accountant people are generally unsure about tax and when letting is involved it is no exception to tax. As a landlord you will be liable to pay income tax on the income received from renting . The tax you will be charged will be at the highest rate of income tax you pay. But there are ways to deduct the amount of rental tax you are required to pay as landlord.

•    Fee’s (Letting Agents, Accountants)
•    Insurance (White Goods, Gas Boilers, Plumbing)
•    Advertising Costs for the property
•    Cleaning Costs
•    Maintenance Costs
•    10% of the annual rent after council tax, for maintenance
•    Interest payments on the letting property
•    Service charge, buildings and contents insurance during tenancy period

All the above can be deducted from the income made from the rent, this then in turn reduces the amount liable towards income tax.

Another tax that a landlord is liable to pay is CGT. Capital gains tax is a tax which is applied when a non inventory asset is sold for more then its bought price, in our case property. You would be CGT exempt if the let property was formally your former residence, but the property must be sold within 3 years it was turned into a rental property. CGT is calculated by taking away the original price from the sale price, you are only liable for CGT on “the gain” of the sale. (The gain is the profit made from the sale of the property, the part which is liable to be taxed by CGT) The proportion which the gain is taxable is dependant on the length of time you have owned the property. You would be liable for 100% of CGT on the gain if the property is sold within 3 years of acquisition. After the 3 years the proportion of CGT you are liable for is reduced by 5% per year. So after 3 years you would pay 95% CGT and after 4 years it would be at 90%. This will carry on going down until you have owned the property for 10 years , you will then be liable for 60% of CGT regardless of how many more then 10 years you have owned the property.

This is the end of part 1 of making money from your property stay tuned for part 2. Where we will talk about HMO’s, what you need to know about letting agents, student lets and more.