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Property Tax Advice

Here at Mark Evans & Co, we have many clients who require our advice on UK property tax and pride ourselves in the way we help them chose tax efficient ways of investing. We have over 40 years of experience in handling property tax issues and we can help you in a friendly, approachable and knowledgeable manner. Just pick up the phone for an informal, free chat by ringing 01482447922 or arrange an appointment to pop in the office for a completely free consultation by clicking here!

How do I start investing in property?

UK property tax can be confusing and daunting, and specialist advice should be taken to ensure that the right amount of tax is being paid and the correct expenses are deducted. We would fully recommend you speak to us before proceeding with property investment as there are several things you need to think about before you jump in and start buying property. Investments in property can have a tax implications from Income and Capital Gains Tax to Inheritance Tax and VAT. We will, however, do everything we can to make the process as straightforward and simple as possible!

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We have put together some advice on UK property buying/selling and answered some of the questions you may have.

UK tax on buying and selling property

Do I pay Capital Gains Tax when selling a property?

Capital Gains Tax (CGT) is tax you pay on the profit you’ve made when selling or disposing of something, mainly an asset. When it comes to property, capital gains tax depends on whether it’s your actual home or an investment property, land, inherited property or business premises.

In very basic terms, when you sell/dispose of a property in the UK personally if you’re a basic-rate taxpayer payer you’ll pay a rate of 18% on any gain (profit). If you’re a higher or additional-rate taxpayer, you’ll pay 28%. These only apply if the profit made is above an annual CGT tax free allowance of £12,300 for the tax year 2020-21. However, there are more complex calculations behind this, depending on taxable income and tax reliefs that are applicable. Please contact us to discuss your individual circumstances.

It is worth noting that couples who jointly buy/sell property can combine their individual tax free allowances which can unlock an annual property profit of £24,600 before having to pay any Capital Gains Tax.

It is now a requirement to declare the sale of UK residential property to HMRC within 30 days of the completion of the sale. This came into effect on 6th April 2020.

You may have to pay interest and a penalty if you do not report gains on UK property within 30 days of selling it.

Sign in or create a Capital Gains Tax on UK property account.

Do I have to pay stamp duty on a house purchase?

If you’re buying a property in England and Northern Ireland, you might have to pay a tax called Stamp Duty Land Tax.

In England and Northern Ireland this tax applies if you’re buying a property that is more than £125,000, or a non-residential property that is more than £150,000. There are different rates of tax depending on how much the property is worth, whether you own another property and where you live. All investment properties which you don’t live in or any additional second home is subject to a further 3% on top of each stamp duty band and properties bought within a limited company are also subject to this.

What are the Inheritance Tax charges on property?

You might choose to invest in property, so you can have something valuable to leave to your family. If so, please contact us to discuss your individual circumstances.

Tax on rental income

If you have bought/acquired a property which you rent out, you may have to pay tax on the profits made. This depends on the type of rental that you have. For example, with residential letting and furnished holiday lets, you can claim back various types of expenses to reduce your tax bill. However, if you Rent a Room in your residential property then with the Rent a Room relief scheme, you get a tax-free allowance.

Do I pay tax on a property which I rent out?

If you own a property which you rent out, you pay tax on the profits you make on the rental income. The profits made are just like a normal part of your income, so you’ll pay tax at your normal rates, however, there are several tax deductible expenses which you can claim on rental properties such as letting agents’ fees, Council Tax, buildings insurance, repairs and renovations and currently some mortgage interest.

In addition, If you let out residential property (a dwelling house) you may be able to claim a deduction for the cost of replacing domestic items such as:

The Replacement of Domestic Items relief applies to property that can be unfurnished, part furnished or fully furnished. However, there are some conditions when claiming:

It must be noted, however, if you replace a domestic item in a property which qualifies as a Furnished Holiday Let, Replacement of Domestic Items relief isn’t available. You will continue to be able to claim capital allowances on these items.

If you use the Rent a Room Relief, Replacement of Domestic Items relief isn’t available.

Can I claim Capital Allowances on a holiday let?

If you have a property you rent out as a furnished holiday let, and it meets certain conditions, you may also get a capital allowance for furnishing the property:

Capital Allowances are available on fixtures and integral features and on other costs incurred within your furnished holiday let.

This might include expenditure on furniture, fixtures and fittings.

Do I have to pay tax if I rent a room out in my house?

If you rent out rooms in your personal home to lodgers, you can either treat this as a residential property letting or you can claim Rent a Room relief.

It must be noted that in order to claim Rent a Room relief then the room must be easily accessible from your house and not in a separate flat or annex and also the lodger must share common areas like your kitchen.

The Rent a Room Scheme has different tax implications depending on the cost of the maintenance of the room

The conditions for the scheme are that:

If your house is jointly owned, each of you can claim £3,750 of tax relief.

The combined claim adds up to the £7,500 tax relief allowed under the scheme.

For example, if you’re the sole owner of the house and get £10,000 in rent, you won’t have to pay income tax on £7,500. You’ll have to pay tax on the £2500 that is over the threshold. You’d need to pay this tax even if the cost of maintaining the room is more than what you earn in rent.

Due to the conditions of the scheme, if it costs you more than around £3000 a year to maintain the room, then you’re probably better off not claiming the relief and just treating it as a taxable income on your annual tax return.

I want to start investing in property, should I buy them in a limited company or personally?

First of all, this question is entirely dependent on what you wish to achieve. A limited company is a brilliant vehicle for building a property portfolio and is better for an investor who wants to grow their portfolio over time by keeping any rental income in the business which can be reinvested in further properties. There are also tax benefits when you want to take money out of a limited company with a £2000 per year tax free dividend and then a low dividend tax rate thereafter, however you also have to pay corporation tax on any annual profits at 19%. In addition, accountancy fees and administration requirements are higher when you choose the limited company option. It must be noted that Capital Gains Tax does not apply to property bought though a limited company.

On the other hand, if you buy the properties personally, any profit made from rentals are classed as personal income. This personal income route maybe beneficial if you are living off the profits from the properties and have no additional income such as a job etc.

If you require any further information about any UK property tax advice, then please feel free to ring us at our friendly Hull office on 01482447922

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