A major aspect of being a UK landlord is understanding the purchase to let tax you have to pay, and there could be changes in store for the area.
Landlords and small businesses, as well as advisers, are being asked to give their views on the buy-to-let tax in a survey by the Office for Tax Simplification (OTS).
Those operating in the sector have had to deal with numerous tax changes over the past few years, including income tax on rental gains, capital gains tax on the sale of property and changes to mortgage interest relief.
The consultation aims to deduce which aspects of the taxation of property income are particularly complicated and difficult to master for owners. He asks for suggestions for improvements from people facing these taxes.
It covers both rental income from a property after deductible long-term deductions, as well as the furnished vacation rental regime, which applies to qualifying short-term rentals. A growing number of landlords have turned to short-term rentals in the wake of Covid.
Overview of purchase taxes for rental
Section 24 of the Finance Act 2015, which limits all tax relief on housing finance costs to the base rate of 20%, is one of the most controversial homebuyer tax changes. lease. It came into full effect in April 2020 and had a major impact on some owners.
Some landlords have chosen to form a limited company when investing in new rental properties. This means that corporation tax applies, which may be lower than the higher rates of personal income tax. More buy-to-let businesses were created in 2021 than in any previous year.
The buy-to-let tax on income from rental property has changed and the personal allowance is currently £12,570 at the time of writing. Owners pay 20% tax on income between £12,571 and £50,270.
The highest rate is then £50,271, where 40% tax applies on profits above this amount from rental income.
In terms of capital gains tax, which applies when selling a second home or rental property, there have been several changes in recent years. Property owners currently have 60 days to report and pay this tax when selling a property.
Abolition of stamp duty
During the pandemic, the stamp duty was temporarily abolished by the government in order to stimulate the housing market. The incentive appeared to be successful and was one of the drivers of the huge real estate appetite seen across the country over the past two years.
As of October 2021, rates have resumed, which includes an additional 3% surcharge for anyone purchasing a second property or investment property. As a rental purchase tax, this can add a large sum of money to any purchase by a landlord.
There have been many calls to shake up the stamp duty and remove the surcharge to bring more owners into the market. With more households living in the rental market than ever before, it is essential that there is sufficient stock available to tenants.
What is the OTS survey about?
As anyone renting a property in the UK must pay the correct tax, the OTS aims to ensure that the system is easy enough for everyone to understand and follow.
It asks questions about whether you’ve had difficulty understanding how taxable profits are allocated and whether you’ve had difficulty understanding the relief available on mortgage interest paid.
He also questions awareness of things like the £1000 land allowance and asks where you go for tax advice.
The survey is open until June 5.
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