Buy-to-let schemes and tax: what you need to know

by Housesimple on 11th January 2017

Buy-to-let schemes can be a great way to invest in property, so it's important to be clued up on the types of tax you may face. 

Whether you have some savings you want to store or have found a great property you think could be a potential moneymaker, it's key that you stay up-to-date with the rules on stamp duty and Capital Gains Tax to avoid any nasty surprises when buying to let.

Before you want to buy

All properties in the U.K., minus Scotland, are subject to Stamp Duty Land Tax if they're purchased for over the value of £125,000. When buying an additional home or a buy-to-let property, it's important to note that you will be charged an extra 3% on top of this figure, so you should factor this sum in before buying. 

When you want to rent

Once you begin renting a property you will also need to pay income tax on the rent payments you receive. Being a buy-to-let landlord means that you can offset some of your mortgage interest payments, but as of April 2017 these relief rates will be restricted. The government aims to limit the amount landlords can offset to 20% by April 2020, so keep this in mind when working out your property's yearly finances.

In order to meet mortgage repayments you'll want to ensure your property is occupied for as much time as possible. Advertising on online is a great way to get access to a wealth of potential tenants looking for a new home, helping you to maintain a regular rental income.

If you want to sell

If and when you decide to sell your buy-to-let property, note that you will be subject to Capital Gains Tax if you make a profit and your gain exceeds the annual Capital Gains Threshold.

Don’t just assume you’ll be able to sell the property to make repayments. If a property does sell for less than you expected, it will be up to you to make up the difference on the mortgage.

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