Buy To Let Mortgages UK
Buy to let is one of the biggest markets in the UK; it is also one of the fastest growing areas of investment...
Tax Implications of Buy to Let
Nobody really likes to think about taxes but unfortunately, where buy to let is concerned, there are a range of taxes that need to be considered when budgeting for your growing portfolio. Generally, the following taxes will have to be dealt with and planned for as part of a buy to let investment:
income tax; and
capital gains tax.
In its simplest form, income tax is payable on rental income in the same way as any other type of income that you receive. Bear in mind that if you are receiving an alternative income which is anywhere near the 40 percent tax rate point, then the rental income may push you into the higher income tax band and result in you paying 40 percent tax on your rental income.
Not all of your rental income will be taxable, as certain expenses can be deducted from the income before it is used to complete the tax calculation - it is worth speaking to a specialist tax advisor in this respect.
Capital Gains Tax
Perhaps the most dreaded of all taxes! Every individual will have a personal allowance for any gain made in the tax year. The allowance amount will be deducted from the gain, with the remainder amount being the taxable gain amount. This amount is then added to the income received that year and taxed at the appropriate rate.
Capital gain is defined as the selling price minus the purchase price, purchase expenses, sale expenses and any taper relief and indexation allowances available. Again, a specialist tax advisor should be consulted.
Tax for a buy to let investor is a complicated and potentially very expensive part of the business;
income tax and capital gains tax planning can substantially reduce the costs incurred and professional advice is essential at all stages of the planning.